Curaleaf is a Buy at these levels, says Beacon

Beacon Securities analyst Russell Stanley remains positive on Curaleaf Holdings (Curaleaf Stock Quote, Chart, News, Analysts, Financials CSE:CURA), maintaining his “Buy” rating and target price of C$25.00/share for a potential return of 71 per cent in an update to clients on Wednesday.

Headquartered in Wakefield, Mass., Curaleaf Holdings is a vertically integrated cannabis operator in the United States with 109 dispensaries, 22 cultivation sites and 30 processing facilities across 23 states, which covers an aggregate population of 192 million.

Stanley’s latest analysis comes after Curaleaf announced that sales of flower for medical use were to begin yesterday at its Newburgh location, followed by launches at the company’s Queens, Long Island and Plattsburgh dispensaries today, with a more formal release to most wholesale customers expected by the end of the month.

“As flower typically represents about 50 per cent of sales in states that allow it, the introduction of flower should double the addressable market,” Stanley said. “While our forecast already contemplated the flower launch, we view the development positively as it demonstrates New York’s improving fundamentals.”

Stanley also noted that provisions legalizing the production and sale of flower for medical use in New York were included in the adult-use legislation enacted earlier this year, but those provisions were only recently implemented by Kathy Hochul, the state’s new governor.

“The new governor has also helped install the leadership of the new regulator, which is a critical step towards implementation of adult-use,” Stanley said. “Investors should now be watching for details as to when/how existing licensees will be allowed to double their dispensary counts to eight, three of which will be allowed to serve the forthcoming adult-use market.”

Prior to the legislation, cannabis was only available to New York patients in ground form, though the company had been preparing for the eventual introduction of whole flower in the market.

“Our patients have been waiting a long time for this day and we couldn’t be happier to be able to deliver whole flower product to all four of our New York locations in the next day or so and to the majority of our wholesale partners within the month,” said Joe Bayern, CEO of Curaleaf in the company’s October 26 press release. “Fortunately, we have been preparing for this moment and we are more than ready with plenty of product for all our New York locations. We are grateful to Governor Hochul and the OCM for moving this forward so quickly, and we look forward to robust sales and happy customers. We appreciate the patience and loyalty of all our patients as we worked toward this milestone.”

Stanley’s financial projections have Curaleaf continuing to move forward, nearly doubling its revenue in 2022 to jump into ten figures at a projected $1.24 billion, with that number slightly below the consensus estimate of $1.29 billion. Stanley projects 2023 to mark a significant step forward for Curaleaf with a projected jump to $2.05 billion in revenue for a projected year-over-year increase of 65.5 per cent, outpacing the consensus projection of $1.85 billion. (All figures in US dollars except where noted otherwise.)

Meanwhile, the projections also have Curaleaf’s EBITDA trending upward, with Stanley forecasting $330 million in EBITDA (consensus estimate $364 million) and a 26 per cent margin for 2022 before spiking to $825 million and a 40 per cent EBITDA projection for 2023, outpacing the consensus estimate of $618 million.

Stanley’s valuation data also produces a positive picture for Curaleaf, with the EV/Revenue multiple projected to effectively be halved from the reported 12.3x in 2020 to 6.2x in 2021, with another projected drop to 3.7x in play for 2022. The EV/EBITDA multiple projections follow a similar path, dropping from the reported 53.5x in 2020 to a projected 23.3x in 2021, then hitting single digits at a projected 9.4x in 2022.

With the company’s next quarterly financial results expected on November 8, Stanley is projecting quarterly revenue of $322 million with $89 million in adjusted EBITDA (27.6 per cent margin) compared to the consensus expectation of $340 million in revenue with $98 million in adjusted EBITDA (28.8 per cent margin).

Overall, Stanley is interested in company management’s views on potential federal reform, updates on efforts to expand cultivation in multiple markets, and the latest M&A outlook, while also noting that the company continues to trade at a small discount compared to its peers, making it an attractive investment option.

“As the largest US cannabis company by market capitalization and footprint, and one of the most liquid based on the average daily value traded, we continue to expect CURA to be a core position for many cannabis investors,” Stanley said.

Overall, Curaleaf’s stock price is down 24.8 per cent for the year to date, reaching a high point of C$22.83/share on February 10 and closing Wednesday at its lowest point of the year, trading at C$12.34/share.