Stock of the Week: Curaleaf

U.S. cannabis surges: But guess who wants the taxes

Andrew Willis 24 August, 2020 | 1:18AM

 

 

Andrew Willis: Canada had the initial advantage when it came to legal marijuana, but now, focus has shifted to the U.S.

The pace at which the U.S. market is growing, even during a pandemic, is exemplified by industry giant, Curaleaf (CURA). Their earnings last week were particularly impressive – revenues in the last quarter grew by 22%!

Curaleaf maintains the critical elements we look for with fledgling cannabis companies. For one, debt levels are still healthy, with almost half of what they owe still available in cash. And their profit margins are still very comfortable at around 45%. 

Curaleaf bet on the efficiencies and control of a vertical-integrated business, similar to other U.S. cannabis giants such as Green Thumb Industries (GTII). These companies are focused on control at home, from cultivation, to processing, branding, and retail sales. This means full exposure for investors to the  largest and fastest-growing market in the world.

But this only has Morningstar director of equity research, Kristoffer Inton maintaining his fair value estimate of $17, because there’s a tradeoff. Remember that U.S. companies need to gain control at home because they’re trapped in the country until it’s legal. They’re all beholden to the same heavy U.S. licensing, branding and taxation obstacles that can encourage the black market and limit profits.

Much is still unclear and when it comes to lobbying power to change those rules, but I have a feeling the money does a lot of the talking come tax season anyways.

For Morningstar, I’m Andrew Willis.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canopy Growth Corp21.57 CAD-0.05
Curaleaf Holdings Inc9.29 CAD-2.72
Green Thumb Industries Inc18.62 CAD-0.05

About Author

Andrew Willis

Andrew Willis  Andrew Willis is Content Editor for Morningstar.ca

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