Curaleaf: another American pot company outshining its Canadian rivals

Curaleaf Holdings, Inc. (CSE: CURA)(OTCQX: CURLF) continued its push to become the world’s largest cannabis company in the last quarter, posting record revenue of US$129 million, counting acquisitions that the company has yet to close.

After major Canadian pot producers recorded massive losses and shrinking sales in the quarter that ended September 30, Curaleaf is among a crop of American weed players showing their northern rivals how it’s done.

The Massachusetts-based company announced late Tuesday a 33 per cent increase in quarterly sales compared to the prior three-month period and a small operating profit of US$9 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Although the firm posted a third-quarter net loss of US$6.8 million, or a penny a share, it was a big improvement over the US$24.5 million loss it incurred in its previous quarter.

Curaleaf said its Q3 results are the best in its history and investors seemed to take notice as company shares soared 15 per cent Wednesday.

While Canada’s Canopy Growth (TSX: WEED) remains the largest cannabis company by market value, its share price has been hammered this year down almost 50 per cent due to sluggish sales. On the flip side, Curaleaf is up 22 per cent on the year with a current share price of $8.40.

“Our increasing scale along with the incredible efforts of our team around the country who ensure our patients and customers have a superior experience, helped drive the strong financial results we posted this quarter,” said CEO Joseph Lusardi in a release.

In Q3 2019, we reported a record quarterly Pro Forma Revenue of $129.0 million and a Managed Revenue of $73.2 million. More on our latest earnings update here: https://t.co/Fp4XaQcLLP $CURA $CURA.C $CURLF pic.twitter.com/k41zSTBoyh

— Curaleaf (@Curaleaf_Inc) November 19, 2019

Curaleaf plans to lead U.S. weed market

The company’s total revenue for the quarter came in at US$61.8 million, with retail and wholesale sales more than tripling year-over-year to US$50.7 million. Most of the increase came from organic growth in major medical cannabis markets in Florida and New York and new dispensaries opening in Massachusetts to serve the state’s recreational market.

But Curaleaf said by purchasing two large cannabis companies its pro forma revenue is more than double that of its current operations.

“We look forward to the closing and integration of the Select and Grassroots acquisitions which are expected to bring significant operational capacity to Curaleaf in key markets,” Lusardi said.

By adding the two cannabis firms, Curaleaf’s reach will extend from 12 states up to 19 and its store total jumps from 71 to 131.

The company said it bought Chicago-based Grassroots for US$875 million in the quarter to expand its footprint into the potentially lucrative Illinois and Michigan markets.

Curaleaf recently negotiated a better deal on its acquisition of Select, which primarily manufacturers and sells cannabis vape products. According to Barron’s, Lusardi said the well-known West Coast brand saw a drop in September sales after an epidemic of vape-related lung injuries broke out over the summer.

The company expects both deals will close early 2020.

Analysts covering the cannabis space have cheered Curaleaf’s performance. Cowen analyst Vivien Azer raised her sales forecast for the company, while keeping her $12.60 price target intact for the stock, as per Barron’s. Rob Fagan at GMP Securities maintained his bullish price target of $24.

Curaleaf previously forecast its 2020 revenue would reach US$1 billion, but investors might want to watch the company’s cash flow in the next couple quarters. At the end of September it had US$91.2 million of cash but the company is also carrying US$106.0 million of outstanding debt and approximately 464.1 million fully diluted shares outstanding.