Curaleaf is one of the behemoths of the cannabis industry. Its market capitalization is some $6.5B. Revenues printed ~$665M for 2020; they are expected to double that to $1.2B for 2021. The EBITDA rate is guided for 30% to $360M. Recent deals will continue to expand its footprint (EMMAC) into Europe which is an eventual new market that should cannabis legalize on an adult-use basis will provide a far greater potential market. Given this large of a footprint, I wanted to break down the numbers to determine where the stock could be over the next year given the consideration of revenue generation, costs, margins, and EBITDA profits. Net profitability is probable this year and I wanted to show the run-rate $CURLF is on.
Here is a look at $CRLBF chart:
As with a lot of cannabis stocks, $CURLF has been trending higher after last year’s lows. Curaleaf has taken a small step to the side with surges and movements that have been more muted.
What I want to know is if I were to buy a share of $CURLF, what value will I earn from this?
Curaleaf revenue is a picture-perfect image of revenue growth:
Revenues improved by 13% QoQ to a new record level. They are expected to continue at a solid growth rate. With expectations of $1.2B $1.3B for the year they are going to have to accelerate their revenues much faster. The $49.9M print is small compared to where they need to be for reaching the projected revenues:
I have put together this accelerated revenue picture to show what the rest of the year could look like. It may be that this coming quarter does not achieve the $95M I have projected here; that merely means the rest of the revenue needs to be achieved in the latter part of the year.
At the same time, projections were for the range of $1.2B – $1.3B; I am only showing $1.2B. Possibly, there is an additional $50M per quarter split on the last two quarters.
Gross margins have come down the past quarter. But, with Curaleaf’s projections, margins are going to have to increase significantly in order to make the math work. This is likely to not be an issue since Curaleaf will be doubling its revenues. With economies of scale and productivity gains, move gross margins back upwards to levels just seen is a high probability event:
As you can see the levels above are solid. Curaleaf was just at 65% a couple of quarters ago and I expect they will continue to push back upwards with their revenue growth translating into increased gross margins. Productivity gains and economies of scale are going to be the driving force of increased gross margins. From the projections, the only way the math works to get to the $350M in EBITDA is productivity gains.
Total operating costs are slightly elevated. But, Curaleaf has done an excellent job of keeping costs measured as they expanded:
Revenue is about to double in the next three quarters. This will push operating costs down significantly and I would not be surprised to see this metric start to print in the bottom 30% level. In fact, again, it has to simply to get to $350M in EBITDA profits. But, that makes sense since total costs over total revenue is a mathematical computation.
I wanted to highlight the EBITDA because this is where it is at for Curaleaf:
I wanted to measure out what the EBITDA picture would look like. The guidance was for $350M for the entire year. However, we are already one quarter in and this quarter was not record-breaking with regards to the potential EBTIDA that we will see; it all has to come in the back end. This is what EBITDA profit may look like:
Given this outlook, I expect a big push on this metric as well; it all has to start flowing in. And, should we start to see these kinds of numbers, that is when I could see a surge in the stock price for $CURLF
$CURLF Base-Case Scenario
I absolutely see the potential value in this stock. However, Mr. Market may not. I believe that once the elevated levels start to flow in the stock will start to move upwards.
- $1.2B Revenue
- 35% Cost of Goods/65% Gross Margins
- 30% Operating Costs
- 10% COntinuing Costs
- 30% EBITDA Profits: $360M
- $240M in net profits; there are 686M shares outstanding
- This is a $0.35 EPS
Given a 100x future earnings multiple $CURLF could trade as high as $35.00 by the end of the year. While I do not expect Curaleaf to earn a full $240M in net profits over the next few quarters, the base-case is that they potentially would. However, they are going to continue to expand operations and incurring start-up costs for those.
Given that, the potential is there and I expect the market to push forward after the next few prints of financial data. While I do not see the full $240M net profit being printed after this year investors will take note of the potential and begin to push the stock higher… this stock and many others.
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