Why Curaleaf Remains Among Top Cannabis Picks – Analyst's Thoughts On Recent Acquisition Spree

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In November, Curaleaf Holdings, Inc. (CSE:CURA) (OTCQX:CURLF) reported its third-quarter earnings, revealing a 74% year-over-year increase in revenue to $182.41 million.

At the time, Boris Jordan, executive chairman of the company said that despite “some transient headwinds” during the period, Curaleaf remains “on track to achieve our $1.2 to $1.3 billion annual revenue guidance.”

Now that the company’s reporting date is approaching, Cantor Fitzgerald’s analyst Pablo Zuanic projects 2022 sales of $1.58 billion. “We view the FactSet sales consensus as a tad high,” he said in his latest note.

The Analyst

Zuanic reiterated an overweight rating on Curaleaf’s stock while lowering the 12-month price target to $16.50 from $18.50, on a reduced base estimate.

The Thesis

The analyst factored in three recent deals the company recently announced that will bring its retail footprint in Arizona to 16 stores, second only to Trulieve Cannabis Corp. (CSE:TRUL) (OTCQX:TCNNF).

The recently announced $211 million acquisition of Arizona-based Bloom Dispensaries, which is expected to close in January, includes four retail dispensaries in Phoenix, Tucson, Peoria and the only dispensary currently in Sedona. The transaction also includes two adjacent cultivation and processing facilities in north Phoenix, totaling approximately 63,500 square feet.

A deal to acquire a Safford, Arizona dispensary for $13 million in stock and cash is another transaction expected to close this month. Once an agreement to purchase Natural Remedy Patient Center, LLC closes, the dispensary will be relocated to a 9,000 square foot store in Scottsdale.

Under the $286 million deal with Tryke Companies, which is doing business as Reef Dispensaries, Curaleaf would take over six heavily trafficked dispensaries under the Reef brand, including two retail stores in the Grand Canyon State and four in Nevada. That transaction is expected to close in the second half of 2022.

Zuanic stressed that “store ownership matters” in states such as Arizona, as it is “one of those rare states where there is a finite number of retail licenses.”

Being essentially capped at a low number and with 17 stores per one million people, Arizona has the “lowest store density among rec states,” the analyst explained, adding that ”sales have slowed” since the start of recreational sales in 2021.

Market Estimates High For MSO Group

The analyst projected that Curaleaf would generate $325 million in sales for the fourth quarter, slightly below the FactSet consensus of $332 million, representing a 2% sequential growth, in addition to EBITDA margins of 24% for the same period.

Curaleaf remains among Zuanic’s top picks in the cannabis space, having 128 stores and a $1.3Bn sales run rate, as well as a presence in 23 states and Europe.

“In macro terms, federal level reform expectations will likely remain the drivers of sector sentiment, and in that regard, we remain cautious at least for 1H2,” the analyst said.

CURLF Price Action

Curaleaf’s shares traded 0.57% higher at $8.8 per share at the time of writing on Tuesday.

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