Curaleaf, CURLF stock, published increased revenue for the quarter. However, gross margins declined. This is telling that despite higher sales volume, the amount kept by the company is less, and/or, there are higher costs involved in acquiring the revenue. As well, operating costs increased despite the higher revenue, driving down EBITDA profits. Another print of negative net earnings is assured with these numbers. Curaleaf will need to catch its breath at some point and focus on its core business becoming more profitable instead of merely building endless dispensaries.
Nonetheless, on the horizon we have the HHS announcement that will assuredly drive stocks higher. CURLF stock Forum.
Cannabis Companies and Taxation
One of the things I am most focused upon with cannabis stocks is the taxation level that these companies have to pay in taxes. I did a comparison of a few cannabis companies are paying versus a few other, non-cannabis companies. Cannabis companies are not permitted to write off equipment and expenses since the product is Schedule I. Some companies can get away with a few things because they do other things within the course of their business. But, mostly, they are paying approximately 15% in taxes versus an effective rate of about 4% – 5% with other companies. The amounts that are being paid are some 7.5% higher than other companies. With this, Curaleaf should see bottom line increases with a shift to medical legalization.
Subscribe to my channel
Curaleaf Financial Data
Curaleaf Gross Profits
The increased revenues are always welcome. However, and as mentioned in the beginning of this post, the drop in gross margins on increased revenues tells that either the costs to acquire the income was higher, or the revenue per unit was lower, and Curaleaf simply sold more units at these reduced prices. Likely, it is a combination of both. Curaleaf will need to push for higher gross margins and attain the 50% level once again, and then push slightly higher than that. Ideally, 55% – 65% would be the target area for these larger cannabis companies.
Opening and running new dispensaries takes money and time to build up to profitability. It may take a few years until each individual dispensary hits economies of scale with its respective customer base in order to grow to an organic profit level.
Curaleaf Operating Profits
Operating costs, on a relative basis, also climbed upward despite the increase in revenue. This reiterates that margins are thin and getting thinner with the bigger players within the industry. Still, the ability to scale into bigger size and attain a level of profits that enable Curaleaf to hit a more competitive operating profit level may take more and more time. The reduced gross margins are already eating into profit levels and metrics. Increasing costs for operations are merely adding to the issues.
Curaleaf EBITDA & Net Earnings
As I mentioned, EBITDA improved. But, I also see the potential for gross margins to improve even more; this will improve EBTIDA & Net earnings profits. As of now, gross margins are 50% on $320M revenue and operating efficiencies are 36.7%. But, if revenues increase as we expect, and so do margins because of marginal profits via economies of scale, this is where the real bang-for-the buck comes in.
On the probabilistically $1.35B for 2023, an increase of ~$100M in revenue Year-Over-Year, could easily push margins upwards for the year. If Curaleaf were to hit an additional 10% in gross profits on top of the current ratio, that amounts to $10M trickling downward to EBITDA and Net Earnings.
Factor in a potential 5% more in operating efficiencies, then this is where you really see the potential for profit increases.
Curaleaf Cash On Hand
On a comparative basis, Curaleaf has a low amount of cash relative to debt. But, should they turn Net Earnings break-even, things change rapidly and there can be some real adjustments to the outlook of Curaleaf as they potentially do acquisitions and more CapEx. Get to break even, and you no longer have a cash burn rate but, a positive net working capital gain.
Look for the potential of this turn around.
Curaleaf Total Equity
Curaleaf is also not growing total equity too rapidly on a comparative basis when you look at other companies. Equity, via the accumulation of assets at a rate that is greater than debt, is the engine that gives a company the ability to generate revenue & profits. The rate of increase here is not top-performing. But, the cash burn rate may be the factor driving this. And, as organic growth continues to push margins higher, if Curaleaf can capitalize on this, they potentially can start generating more and more total equity.
Curaleaf CURLF Stock Forecast
Curaleaf CURLF Stock Discounted Cash Flow Calculation
| Assumptions | |
|---|---|
| Tax Rate | 25% |
| Discount Rate | 8.000% |
| Perpetural Growth Rate | 25.0% |
| EV/EBITDA Mulltiple | 25.0x |
| Transaction Date | September 1, 2022 |
| Fiscal Year End | 12/31/22 |
| Current Price | $6.680 |
| Shares Outstanding | 724,024,965 |
| Debt | $1,838,700,000 |
| Cash | $197,700,000 |
| Market Value | |
|---|---|
| Market Cap | $4,836,486,766 |
| Plus: Debt | $1,838,700,000 |
| Less: Cash | $197,700,000 |
| Enterprise Value | $6,477,486,766 |
| Equity Value/Share | $6.6800 |
| Discounted Cash Flow | Entry | 2022 | 2023 | 2024 | 2025 | 2026 | Exit | |
|---|---|---|---|---|---|---|---|---|
| Date | September 1, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2027 | Dec 31, 2027 | |
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 1.33 | 1.00 | 1.00 | 1.00 | 1.00 | |||
| EBIT | $382,500,000 | $525,000,000 | $687,500,000 | $825,000,000 | $975,000,000 | |||
| Less: Cash Taxes | $95,625,000 | $131,250,000 | $171,875,000 | $206,250,000 | $243,750,000 | |||
| Plus: D&A | $59,500,000 | $73,500,000 | $87,500,000 | $96,250,000 | $105,000,000 | |||
| Less: Capex | $170,000,000 | $210,000,000 | $250,000,000 | $275,000,000 | $300,000,000 | |||
| Less: Changes in NWC | -$17,000,000 | -$21,000,000 | -$25,000,000 | -$27,500,000 | -$30,000,000 | |||
| Unlevered FCF | 1 | $193,375,000 | $278,250,000 | $378,125,000 | $467,500,000 | $566,250,000 | ||
| (Entry)/Exit | -$6,477,486,766 | $11,418,198,529 | ||||||
| Transaction CF | - 0 | $257,833,333 | $278,250,000 | $378,125,000 | $467,500,000 | $566,250,000 | $11,418,198,529 | |
| -$6,477,486,765 | $257,833,333 | $278,250,000 | $378,125,000 | $467,500,000 | $566,250,000 | $11,418,198,529 |
| Rate of Return | |
|---|---|
| Target Price Upside | 53% |
| Internal Rate of Return (IRR) | 15% |
| Market Value vs Intrinsic Value | |
| Market Value | $6.68 |
| Upside | $3.54 |
| Intrinsic Value | $10.222 |
I have been making necessary shifts in the DCFs with regard to performance by the respective company as well as overall investing environment. Interest rates are higher and I have to adjust for that. Time is shifting and so, an investment today with a 5-year outlook will be different than something that occurred just three months ago. These are thing constant shifts that require me to continually update this information.
Given that, the above is the latest intrinsic value for Curaleaf, CURLF Stock.
Is CURLF Stock a Good Investment
By assets, market capitalization, and revenue, Curaleaf is the biggest cannabis company there is. And, as far as cannabis investments, I think this stock has a lot of potential. However, I am always reluctant to throw too much weight on CURLF Stock. But, I even have to balance that. Curaleaf’s numbers are under-performing against the likes of, say, Green Thumb or Trulieve. While I believe that all of these cannabis stocks will head higher, I also believe that there is a first-to-market mentality in looking at these companies.
Curaleaf is, on the one hand, invested in by big names and far, far more bigger names will step in and push CURLF Stock upward. It will create a feedback mechanism. But, when you start comparing numbers, I believe Green Thumb & Trulieve, and many others, will start to outperform CURLF Stock. That may cap Curaleaf. That may be the difference maker.
At the same time, being a company of this size will also merit management achieving big things including looking at the bottom line and make necessary changes. Look for these kinds of things to occur in the future and, that could be very supportive long term for CURLF Stock.
