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The article was originally published on January 14, 2022.
Headquartered in Wakefield, Massachusetts, Curaleaf (OTCPK:CURLF) is the world’s largest cannabis company. With a massive footprint spanning 23 states, Curaleaf operates 117 dispensaries and 25 cultivation sites. The firm employs over 5,200 people and has 2,100 active dispensary wholesale accounts. By any metric, Curaleaf is a massive, and expanding, cannabis enterprise.
Originally, Curaleaf was known as PalliaTech and operated in New Jersey with a research center in Colorado. In 2013, they received a significant investment from current Executive Chairman Boris Jordan and The Sputnik Group.
Five years later, the firm changed its name to Curaleaf and raised $400 million by going public on the Canadian Securities Exchange (CSE). Today, they trade on the CSE under $CURA and $CURLF on the US OTC exchange.
Curaleaf has the broadest footprint of any multi-state operator (MSO). Their presence not only spans 23 states, but also touches almost every major market online today and is positioned to capitalize on east-coast markets that are in the cannabis investing sweet spot: medical markets moving to recreational.
The other notable aspect of the footprint is the emphasis on population centers. Having assets in sparsely populated, open-license environments , is very different than owning limited licenses in dense, hugely populated states.
New Jersey is an excellent example of where Curaleaf is focusing their attention. The state is home to 8.9 million people, and historically has been a small medical market with a massive illicit market fed by the west coast. The state is switching to recreational (aka adult use), meaning anyone over 21 can purchase without a medical card. It is anticipated that this will increase sales from around $250 million this year to over $1 billion by 2024.
Curaleaf is the only MSO with a significant presence in Europe. While Canada is too small and overvalued to care about, Europe is a different scene. The population is more than double the US, and if they consumed at a similar rate it is a $229 billion dollar addressable market. However, the legal market is only $758 million, leaving literally hundreds of billions in untapped potential.
Curaleaf International has licensed flower facilities for greenhouse and outdoor production, import and distribution capabilities to the UK, Germany, Italy, Switzerland and Portugal, plus two EU-GMP processing facilities and labs.
Germany, the fourth largest economy in the world and the largest in Europe, appears to be laying the groundwork for legalization. Curaleaf has secured GDP “Good Distribution Practices”, allowing them to sell directly to the German market. This is huge by itself, but factoring in the potential for more European countries to legalize and Curaleaf already being approved and available in the biggest market is an asset that is hard to quantify.
Curaleaf produces a diversified range of product spanning vape cartridges, concentrates, flower, pre rolls, topicals, capsules, tinctures, lozenges and edibles. The goal is to serve the broadest range of consumers possible. An experienced consumer may head to the concentrates to serve their dabbing needs, while someone newer cannabis is more likely to start with lower-dosed edibles or a vape cartridge.
In total, Curaleaf offers over 250 SKUs. Roughly 150 of these are strains of flower, while the balance are formulated products. The flower offerings range from top-shelf indoor, to affordable outdoor. Depending on the market, and growing climate in the state, it may make more sense to lean into sun grown or opt for climate-controlled indoor.
Vertical integration is always a priority for Curaleaf. Some states like Florida require vertical integration, while other major markets like California make it possible, but not necessary. In Florida, Curaleaf grows the flower, processes it and sell it through their network of 37 dispensaries. In most cases, vertical integration enhances margins and provides greater control of the supply chain.
While quality flower is always a priority, Curaleaf puts a strong emphasis on their formulated products. An excellent is example is their Select Squeeze line of beverages enhancers. These liquid drops come with a 100mg of THC per bottle and allows you to dose your own beverage, making it as strong as you need. Boris and the team believe these types of formulated solutions will be a hit both with newer consumers and also seniors revisiting cannabis – skip the booze and add a couple drops of Select Squeeze to your beverage of choice.
Curaleaf has one of the top executive teams in the business. Co-Founder Boris Jordan is the most visible and serves as Executive Chairman of the Board. He is Russian-American billionaire known for assisting in Russia’s transition to capitalism in the 1990s and helped launch the Russian stock exchange. In addition to his Curaleaf responsibilities, Boris serves as President and CEO of the Sputnik Group, a diversified private-equity business.
Fellow Co-Founder Joseph Lusardi serves as Executive Vice Chairman. Joseph has a private equity background and has over 11 year of experience developing and operating cannabis companies. Joe Bayern serves as CEO and brings valued CPG (consumer-packaged goods) experience. He was previously with Snapple, Dr. Pepper, Cadbury and VOSS.
Green Giants is overweight cannabis companies with investment-oriented management teams. Boris Jordan’s background in sourcing and allocating capital is ideally suited for the current cannabis climate. Being able to raise meaningful money at affordable rates and identify the best ways to spend it is abnormally important early in the growth cycle.
Curaleaf is well positioned financially, with $317 million in total liquidity as of the end of Q3 2021. Q3 revenue was a whopping $317 million, which is a 74% YoY growth. As the business matures, gross margins have declined, but only modestly. Margins in Q3 were 46% (48% without one-time costs), compared with 50% the year prior.
As the chart below indicates, Curaleaf’s growth has slowed, but still is increasing at 124% YoY.
On December 14th, 2021, Curaleaf announced they raised a record $425 million at an 8% interest rate. This deal is the largest yet for any US cannabis company, and among the lowest rates. The structure is five-year senior-secured notes with an 8% interest rate. The deal also gives them the option to tap an additional $200 million of financing.
This gives Curaleaf the ability to retire existing debt at a lower rate. In January 2020 they borrowed $300 million at 13%. Paying this off would equate to $20 million in annual savings.
The additional financing also allows them to continue aggressively acquiring smaller players. Without SAFE Banking, some tier two and three operators are struggling to survive. In a recent Twitter Spaces conversation, Boris Jordan stated that he is regularly receiving calls from smaller firms looking to be acquired. In most instances, he stated the prices are still too high. Depending on the political and economic climate, we may see serious consolidation later this year. Curaleaf is cashed up and ready to act when the prices are right.
The case for Curaleaf keeps getting stronger. They are the largest cannabis company by revenue and by market cap. Their balance sheet, especially after the recent $425 million raise, is arguably the strongest in the industry. Curaleaf is already a polished, expanding enterprise looking to take off in 2022.
The Green Giants strategy values scale, footprints with an emphasis on expanding, limited-license environments and medical markets flipping to adult use. This is the cannabis investing sweet spot. Curaleaf’s assets in states like New Jersey, New York and Pennsylvania are well positioned to capitalize on these emerging cannabis markets.
Exposure to Europe is another unique advantage. Germany’s surprisingly swift move towards full-blown legalization not only drastically boosts the value of their German assets, but also increases the probability we see more rapid reform across major European markets.
A final undervalued asset of Curaleaf is institutional appeal. Cannabis is only approximately 4% owned by institutions, largely due to the federal illegality and the inability to trade on major exchanges. When we see steps like SAFE Banking, uplisting and possibly federal legalization, institutions will rush in and drive up prices. These buyers will favor the biggest, most liquid, most proven cannabis stocks. Curaleaf checks all the institutional due-diligence boxes and will be quickly added to big portfolios and included in indexes.
Disclosure: Curaleaf is a member of the Green Giants portfolio.