Curaleaf is where you want to be in US cannabis, this investor says

Go big or go home is the mantra from portfolio manager Brian Madden when it comes to cannabis companies south of the border. And it’s industry leader Curaleaf (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA) that’s been Madden’s preferred stock in the space over the past year, despite the sector downturn during 2021.

Things looked pretty different this time last year in cannabis. Talk of reform at the federal level in the United States was top of mind with the Democrats gaining control of both houses and legalization looking more likely by the day, while in Canada, early stumbles seemed to be giving way to a more mature industry ready to grab business away from the black market. 

Stocks were also feeling it and had been climbing steadily for a good half-year leading into January of 2021 and that included Curaleaf, which had gone from as low as C$4.00 back in early 2020 and made its way to C$22.00 by early February 2021. 

But that’s about when the tides turned for the sector as a whole, and with seemingly waning interest in pushing forth a legalization agenda in US Congress, there’s been little sign of a recovery brewing here from the vantage point of early 2022.

Look past the overall doom and gloom charts for companies like Curaleaf, however, and there’s the undeniable fact that cannabis in the US is a huge business, albeit on a state-by-state basis at the moment. And Madden says interested investors will want to hitch their pony to one of the best of the lot, regardless of how CURA’s stock has fared recently.

“This is a humbling one,” says Madden of Goodreid Investment Counsel, who spoke on BNN Bloomberg on Tuesday where he reviewed his naming of Curaleaf as a top pick back in January of 2021. “And in fact, we run concentrated portfolios for our clients at Goodreid, although not quite as concentrated as three stocks. And very candidly, I’ll tell you this was the laggard amongst all 20 stocks.”

“So, as much as we had foreseen good things ahead, looking back to a year ago, they didn’t pan out quite as we expected. But nevertheless, we continue to have confidence in in the name,” he said.

“We went into this name with our eyes wide open, knowing that it was an emerging growth sector and story and there were going to be ups and downs, but we looked very, very critically at the company’s strategy and the dynamics of the industry and concluded that this is going to be a long-term winner,” he said.

And Curaleaf is big. The company currently has 117 dispensaries across the US with operations in 23 states and runs 25 cultivation sites. All told they employ over 5,200 people and are even a central player on the international market where Curaleaf has created a supply and distribution network in Europe. Total sales for 2021 are expected to come in at between $1.2 and $1.3 billion, which would be a little shy of double from 2020 revenue. 

“Our strategy has always been to build the largest cannabis Company in the world, both organically and through M&A, selling our nationally recognized trusted brands and across the widest distribution footprint,” said CEO Boris Jordan in Curaleaf’s third quarter 2021 conference call in November. “We’re still in the early innings of our industry’s growth and believe the right strategy for all our stakeholders is to focus first and foremost on gaining market share.”

Curaleaf has bulked up recently with acquisitions in the US Southwest and the company reported gaining market share in the key state of Florida. But the company posted a wider than expected loss in its third quarter which may still be giving investors pause as to whether or not cannabis can truly be profitable in the US under current regulations. 

Madden says if you’re going to play US cannabis, Curaleaf is a great bet.

“It’s likely going to be a very, very large industry with some outside experts forecasting $60 billion of cannabis sales in the US by 2025. And this is the biggest publicly traded cannabis company in the world by revenues,” Madden said.

“We think they’re doing the right things but are just a victim of sentiment or a victim of some legislative delays with the Safe Banking Act and some of the other cannabis reforms that’ve gotten stalled up in Congress,” he said.

“At the same time, we’ve seen heightened competitive intensity in one of their key operating geographies in Florida. Again, we think they’re making the right moves. They’re taking market share there. And so we think in time the validity of their strategy is going to be borne out and we think the share price will be much higher, so we continue to own and buy the shares notwithstanding the humbling setback we faced over the last year year,” Madden said.