While pot stocks have been hammered lately, just like everything else, there are a lot of solid companies that have found themselves stuck in the market trend. As the panic subsides and investors begin sorting through the rubble, they will find some solid stocks that are great bargains.
Curaleaf produces and sells cannabis and cannabis accessories, and provides professional services to other cannabis licenses holders, including cultivation and back-office support though management service agreements. In all, it operates 54 dispensaries in 17 states. Most recently, Curaleaf reported revenue of $325 million in the fourth quarter. Assuming those sales hold, and they likely will since the company is considered an essential business in most of the states where it operates, I expect revenue will break $1 billion in 2020.
Curaleaf is also one of the few marijuana stocks that sports a strong balance sheet. It has roughly $42 million worth of cash on its balance sheet and nearly $150 million when you count current assets and cash equivalents. It has the financial heft to survive this crisis.
Despite that, the stock hit an all-time low of $2.54 back in March. It’s still well off its 52-week high of $11.43 and, given its solid operations, leaves it well undervalued relative to many of its peers. That’s especially true since I think the $1 billion revenue forecast might be on the conservative side.
Based on available data, I don’t think the shares fully value the potential impact of recreational sales in Illinois, where recreational use only recently became legal. Given the available estimates on the size of the Illinois marijuana market, I think the market and Curaleaf itself could be underestimating sales there by as much as $50 million. Considering that Illinois only recently legalized recreational sales and just awarded its first recreational marijuana licenses, it’s possible Curaleaf is just trying to manage expectations ahead of any potential hiccups in the system.
I’m also not sure that estimate takes into account the significant capacity expansion Curaleaf is seeing from recent acquisitions. Last year, Curaleaf had about 1.3 million square feet of production capacity, but that number will almost double to 2.3 million by the end of this year. That’s a lot of extra production, which won’t go to waste since dispensaries are still open in most states.
Even if that $1 billion in revenue does prove to be a conservative estimate, it will still mark an important milestone in the American cannabis business. If Curaleaf hits the $1 billion mark in revenue, it will make it the first American cannabis company to do so.
Curaleaf has had its ups and downs over the past year or so. Targets have been beaten or missed and tangles with the FDA have come to light. That said, it has been smart about its acquisitions and exercised solid cash management. So, while it may not be profitable in the near-term, I suspect it will hit its revenue target and investors will take notice.
Recommended Action: Take advantage of Curaleaf’s bargain price and buy under $10.
Ian Wyatt & Ben Shepherd, Ian Wyatt’s Million Dollar Portfolio, wyattresearch.com, May 1, 2020