Depressing is the word for how cannabis stocks have been faring this year, as most names are down by at least half from where they stood in around February. The damage has been sector-wide with few left unscathed, and that includes the US cannabis companies. But while Canada’s pot scene is mellowing out and a lot of the bigger names are still finding it difficult to turn a profit in the current climate, the same vibe isn’t happening south of the border where US cannabis is big — and about to be bigger — business.
So, for investors willing to buck the trend and pick up some pot stocks that have been seriously scuffed up in recent months, Beacon Securities analyst Russell Stanley has a few good ones for you, all trading on Canadian exchanges.
Trulieve Cannabis (Trulieve Cannabis Stock Quote, Charts, News, Analysts, Financials CSE:TRUL) is a Florida-based operation with now 107 dispensaries across the state. An early mover in the hot Florida market, Trulieve has gained a nice 46 per cent chunk of FLA’s market share for flower product sales.
But the company has been branching out to other jurisdictions, as well, with operations now in 11 states. Notable in its recent events was the completion last month of its merger with Harvest Health and Recreation, said to be the largest such deal in the US market so far at a purchase price of $2.1 billion. (All figures in US dollars except where noted otherwise.)
So far, the integration with Harvest Health’s Florida operations has been progressing well, according to Beacon analyst Russell Stanley who reported on the company on October 28, where he maintained his “Buy” rating and C$90 target for TRUL, which represented a projected return of 189 per cent (all returns are as of the respective report’s publication date).
Trulieve will be reporting third quarter results on November 15 and Stanley is forecasting revenue and adjusted EBITDA of $218 million and $88 million respectively.
“In addition to the results, we will be looking for an update on the integration of Harvest (though the transaction just closed on October 1st), as well as colour on the company’s operations in Florida, Pennsylvania, and Massachusetts,” Stanley wrote in a client update. “We will also be looking for a refreshed M&A outlook, given we estimate that TRUL has $350 million in cash available as ‘dry powder’ based on our operating and CAPEX assumptions.”
Next up is Columbia Care (Columbia Care Stock Quote, Charts, News, Analysts, Financials CSE:CCHW), a multi-state operator with interests in 18 states and a strong presence in the Mid-Atlantic region. New York state just last month opened up the sale of smokable marijuana flower in its medical cannabis dispensaries, and as Stanley reported, Columbia Care was the first of New York’s ten licensed operators to launch whole flower sales.
Stanley also said the company recently launched a new line of high quality, full spectrum CBD products under the N2P brand, while its third quarter results are due on November 12. Stanley is there calling for revenue and EBITDA of $152 million and $32 million, respectively.
On a comparative basis, Stanley says Columbia Care is trading at a marked discount to its peers.
“CCHW now trades at 5.6x our F2022 EBITDA forecast. This represents a 46 per cent discount to the 10.3x average amongst US operators. Potential catalysts include closing of the Medicine Man acquisition in Colorado, further M&A (we estimate Columbia Care has $65M in dry powder), and the Q3 results on November 12,” Stanley wrote in his October 26 report.
With his update, Stanley maintained his “Buy” rating and C$12.00 target for Columbia Care, representing a projected return of 200 per cent.
Another major player in the US, Curaleaf Holdings (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA) operates 111 dispensaries across 23 states with 22 cultivation sites and 30 processing facilities. Like Columbia Care, Curaleaf is now selling flower for medical use in the New York market, where Stanley says flower sales will likely double the addressable market.
“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,” said Stanley in an October 27 update to clients. Stanley maintained his “Buy” rating and C$25.00 target for Curaleaf, which represented a projected return of 101 per cent.
Curaleaf will be reporting its Q3 2021 financials on November 8, with Stanley calling for revenue and adjusted EBITDA of $322 million and $89 million, respectively.
Rounding out the list is Verano Holdings (Verano Stock Quote, Charts, News, Analysts, Financials CSE:VRNO), a Chicago-based company with interests in 14 states and core markets in Illinois, Florida, New Jersey, Pennsylvania, Arizona, Maryland, Ohio and Nevada. The company raised $100 million from its go-public move earlier this year.
Having recently entered an amended credit facility adding $120 million to its available capital, Stanley says Verano is well cashed up for organic and inorganic growth and that a rerating of the stock is warranted given the liquidity (Stanley estimates VRNO to be currently trading at a 49 per cent discount to its peers).
“While a discount may have been warranted when this stock was less liquid, times have changed. VRNO’s liquidity (measured as the average value traded over the last 30 days) is now comparable to that of the largest MSOs, though it continues to trade at a significant discount to those peers based on EV/2022E consensus EBITDA multiples,” Stanley said in an October 20 report.
With his report, Stanley reiterated his “Buy” rating and C$47.00 target price, which represented a projected return of 249 per cent.
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