Curaleaf CURLF stock is growing but, are there problems?

Curaleaf, CURLF stock, is one of those undervalued marijuana stocks that you should be watching out for.  They have guided to earn between $1.2B – $1.3B for the year and they are on track to do so.  But, Curaleaf is now stating after the latest earnings that what is most likely is for them to hit the bottom of that range.  There were a few challenges with the latest quarter and, what I am wondering is if Curaleaf may tell us something about the bigger picture in cannabis stocks: Are there future issues?

First, Curaleaf is growing at an approximate 100% rate annually.  I hardly think this is potentially problematic.  But, the rate that Curaleaf grew this quarter is slowing.  Expectations were high, including mine.  Still, what Curaleaf is doing is building up a solid foundation and, there will be continual growth in the future.

For now, all of the revenue increases were organic.  That is good news if you are looking for undervalued stocks to buy.  With the current rate of growth of revenue, this is still exceptional and it outpaces the broader economy and stock market.  I continually reiterate that creating wealth involves finding fast-paced growing sectors and companies.  So, while there was a decline in the rate of growth for the quarter, Curaleaf is still on track to hit its guidance and, they are printing revenue growth that is twice as fast as before.

As for the issues of slower growth, the headline is bearish, but, Curaleaf is likely to print continuous increases and they are building a very large foundation.

Finally, there was an announcement of another acquisition that will be strategically advantageous for Curaleaf for years.

Curaleaf CURLF Stock Comparison

Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:

  • #1 Market Cap: $6B
  • #50 Revenue Growth Rate: 1%
  • #22 Gross Margins: 46%
  • #21 Operating Efficiencies: 42%
  • #14 EBITDA/Revenue: 22.1%
  • #42 Cash/Debt Ratio: 22.1%
  • #3 Total Assets: $3.1B

Curaleaf leads in market capitalization with the #1 slot.  Something that was surprising to me was that total assets, the #1 slot was Tilray and not the company with the biggest market capitalization.  Not sure what potentially this could mean.

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Curaleaf CURLF Stock Financial Data

This is one of those stocks that, as investors in cannabis stocks, we look toward as a measure of overall performance.

Revenue

The latest video I did on Curaleaf I had projected about $330M in revenue for the quarter; Curaleaf missed my projection:

Curaleaf Revenue
Revenue: To view Curaleaf complete financial data visit CURLF stock page

What was stated was that this is all organic growth for Curaleaf.  The increase from $314M to $317M is about 1%.  But, that 1% is growth in existing businesses that Curaleaf has.

What is interesting is that I reposted an article up on my Twitter account regarding slowing growth in cannabis.  The industry saw a big surge in growth because bars were closed.  So, people switched up to flower consumption.  Now, bars are opening back up and I had wondered if this would impair the growth rate we have been seeing in cannabis sales.

At the same time, Curaleaf did see some hinderance with regulatory factors that produced some slower growth as well as losses.

Gross Margins

I had expected better gains here, but, gross margins softened for Curaleaf a bit for the quarter:

Curaleaf Gross Margins
Gross margins: To view Curaleaf complete financial data visit CURLF stock page

I had expected that since Curaleaf would be expanding as much as they were there would be increases in gross margins. This quarter, the number dropped slightly from about 59% to 56%. But, over time, this is a company that will fight for better performance.  And, as more and more organic growth continues to increase, these margin rates will steadily climb.

Operating Efficiencies

Total Operating costs went up slightly and, operating efficiencies also went in the wrong direction for the quarter:

"Curaleaf

This is a mathematical number.  As long as operating costs remain steady and consistent, and revenues continually increase, this metric will continue to trend lower and lower (you are looking for the lowest possible number here.

Consistently, Curaleaf is building up a platform.  But, performance measures are slightly off for now.  This may be an opportunity for anyone looking for a marque company that is an undervalued marijuana stock with significant upside potential.

EBITDA Profits

For the quarter, EBTIDA profits dropped noticeably:

Curaleaf EBITDA
EBITDA: To view Curaleaf complete financial data visit CURLF stock page

The core business is being paid for, that is for certain.  EBITDA profits are sitting about 22% versus revenues which, that is closer to the broader S&P 500 market performance than the very best pot stocks.  Some of the best companies are printing about 50% more than this metric.

Still, this is a solid number.  And, if Curaleaf continues to increase its revenue, works towards improved margins, EBITDA will surely follow suit.

Net Earnings

There were outside costs that pulled net earnings downward, notably, a tax bill:

Curaleaf Net Earnings
Net Earnings: To view Curaleaf complete financial data visit CURLF stock page

Theoretically, you only pay taxes on profits.  Curaleaf did not really profit for the quarter.  Operating profits were positive, but they fell for the quarter.  After paying for tax, interest and Luther expenses outside of the normal business operations, there was a big loss for the quarter.  So, this loss is not normal, nor should we expect to see continued losses like this.

Cash On Hand

Curaleaf has a strong cash position for now and can easily fund their normal operations:

Curaleaf Cash on Hand
Cash on Hand: To view Curaleaf complete financial data visit CURLF stock page

This is a solid cash position.  But, is it enough?

Cash Debt Ratio

The cash:debt ratio is a bit lower than I would be looking for:

Curaleaf Cash Debt Ratio
Cash Debt Ratio: To view Curaleaf complete financial data visit CURLF stock page

While this is enough for a company to function, this ultimately becomes a competition, or a war.  The better positioned companies will fare, well, better.  We are on the cusp of seeing a tremendous amount of M&A activity.  From that, there will be consolidation.  If Curaleaf were to want to acquire another company that is not EBITDA profitable, nor net earnings profitable, Curaleaf will have to float the company.  As Curaleaf themselves are not net earnings profitable, this weighs on its ability to move further forward.

I see this as a competition for companies to win.  Because of that, Curaleaf is not necessarily in first place.  Because of that, other companies will outperform them.

Total Equity

There was a slight dip in total equity as Curaleaf needed to dip into its cash:

Curaleaf Total Equity
Total Equity: To view Curaleaf complete financial data visit CURLF stock page

Expect to see an increase here as the latest acquisition will add more equity.  This is the continually mechanism for adding revenue as assets are what give a company the ability to grow.

Curaleaf CURLF Stock Chart

We have seen a big jump recently in undervalued marijuana stocks as Republicans introduced new legislation to the House committee:

Curaleaf CURLF Stock Chart
Curaleaf CURLF Stock Chart

Curaleaf is one of those companies that will see increases in the stock valuation if Federal legalization advances.  But, my feeling is that there are other companies that can help you to create wealth more steadily and rapidly.

Is Curaleaf CURLF Stock a Good Investment?

As I mentioned earlier, Curaleaf is a solid company that we will see around for ages.  They will be a marque company.  Curaleaf’s strategy is to focus on growth and building up its foundation.  To that, the most recently announced acquisition is positive.  The fact that Curaleaf is increasing revenues at 100% annually is very big, but this is likely to slow down on an organic basis as there is only so much growth a company can do at any one location.

Metrics were slowed for this quarter and, Curaleaf is guiding that they are likely to see $1.2B in revenue.  But, I wonder what growth rate we see after that?

Still, Curaleaf’s stock is significantly undervalued when you compare them to the broader stock market valuations.  CURLF is an undervalued marijuana stock, for sure.

For me, I see other companies performing more rapidly and will outperform Curaleaf.  If you are holding this stock, you are likely to do well over many years; this is an undervalued pot stock, after all.  But, I would pass simply because I think other companies will grow faster.

 

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3 thoughts on “Curaleaf CURLF stock is growing but, are there problems?

    1. Hahaha… I’m okay today. But, next week, earnings are going to flood in. That’s why I wanted to get this out of the way quickly. Plus, it’s important and it will give me a measuring stick for all future cannabis companies reporting.

  1. Boris (CEO) has built other companies from the past and he cares about investors (long term) but not what he calls short term less than 3-5 years.
    Curaleaf also has MAX out limit licenses State licenses.
    Also I believe that they have made some large investments in Europe (Boris said that it is growing faster than people think we will see how that plays out all that said I believe that could be some of the growing pains and benefits of being the first Big company.

    They will be around but Boris will run it his way because he’s had success in the past and he knows he only has a limited time to get the maximum footprint and when they get unlisted to US Stock exchanges all the institutional buyers will send it up

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