Curaleaf remains a Buy, according to Roth

Look for revenue to drop sequentially in Wednesday’s quarterly release from US cannabis play Curaleaf Holdings (Curaleaf Holdings Stock Quote, Charts, News, Analysts, Financials CSE:CURA). That’s according to Roth Capital Partners analyst Scott Fortune, who updated clients on Tuesday and reiterated a “Buy” rating on the stock.

Ahead of Q1 2023 results from Curaleaf, Fortune said he’s expecting revenue to be $329.8 million and EBITDA at $68.7 million, with the analyst noting that the company transitioned from IFRS to GAAP accounting over the previous quarter, which led to a delay in reporting and a messy-looking Q4 2022 report. (All figures in US dollars except where noted otherwise.)

Fortune said the expected drop in revenue comes from CURA exiting less profitable markets in California, Colorado and Oregon and concentrating on building up its business in Germany, with the end result likely to be a better-looking bottom line.

“In 4Q22, CURA came in line with expectations but lowered its ’23 top-line outlook as it exits less profitable markets (CA, CO, OR), and looks to invest in anticipated strong international growth on the back of German legislative progress. While management tempered its outlook, we expect ’23 to be a year of improved efficiencies operationally and expect additional cost savings from headcount reductions to improve its margin profile and generate cash flow,” Fortune wrote.

The analyst said we can expect to see topline growth from key markets in Florida, Illinois and New Jersey and recoveries of business in Massachusetts and Pennsylvania over the course of 2023. Management has guided for low to mid-single digit revenue growth this year, in the range of $1.32-$1.38 billion, and for Q1 2023 to show a negative two to six per cent sequential revenue decline. Fortune is expecting the drop in revenue to be six per cent and paired with a slight increase in margins. 

“With ongoing macro challenges, we estimate 1Q23 in line with guidance noting negative q/q growth and modelling two per cent growth in ’23 on tempered expectations,” he said.

CURA’s share price has fallen a long way over the past two years, consistent with the whole of the cannabis market, while year-to-date, the stock is currently down about 38 per cent.

With his “Buy” rating, Fortune has maintained a 12-month target price on CURA of C$4.00, which at press time represented a projected return of 56 per cent.