Beacon Securities analyst Russell Stanley likes the new European acquisition by US cannabis company Curaleaf Holdings (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA), saying in a Thursday report that it cements CURA’s position as a European leader in cannabis.
Curaleaf, which operates in 19 states in the US with 152 dispensaries, announced on July 5 that its wholly owned subsidiary Terra Verde LDA will acquire the assets of Clever Leaves’ EU-GMP cannabis facility in Portugal. The facility is over 900 sq m of factory space and 750 sq m of warehousing, to be used for processing flower grown at Terra Verde’s cultivation facility in Alcochete, Portugal.
“By streamlining our production processes and expanding our cultivation capabilities, Curaleaf International is setting the stage for responsible, robust growth over the next few years as cannabis adoption accelerates across Europe,” said Curaleaf CEO Matt Darin in a press release.
Stanley said Curaleaf is already Europe’s largest vertically integrated cannabis company and that the vertical integration attained through the new deal will only strengthen that lead. By the numbers, Stanley estimated that there’s a potential German medical market of 3.2 million patients or about 16x current levels.
“Even assuming a far more conservative 3-5x patient count expansion, that still implies a $1.6 billion market opportunity before even considering adult-use potential,” Stanley wrote.
Curaleaf’s share price has dropped dramatically over the past two years, along with the rest of the cannabis space, but Stanley sees technical strength in the stock, saying it’s in an uptrend and has broken the long-term downtrend that began in the first quarter 2021.
“It has also outperformed the MSOS ETF on a currency-adjusted basis since early Q2, which we attribute in part to the potential for CURA to pursue a TSX exchange listing,” he said.
The analyst has revised his estimates on CURA on among other things softer flower sales volumes in Florida. Stanley trimmed his projected Q2 2023 revenue from $338 million to $335 million and his adjusted EBITDA from $77 million to $70 million. (All figures in US dollars except where noted otherwise.)
On valuation, Stanley estimates CURA to be currently trading at 7.5x his 2024 EV/adjusted EBITDA forecast, which represents a 56 per cent premium to the 4.8x average among CSE-listed US operators.
“We continue to believe a premium valuation is warranted given CURA’s size/liquidity,” Stanley wrote.
With the update, Stanley reiterated a “Buy” rating and C$8.50 target on Curaleaf, representing at press time a projected return of 90 per cent.
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