Tilray Vs. Curaleaf: Which Cannabis Stock Is The Better Buy?

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For those interested in investing in the cannabis sector, two names may stand out: Tilray (NASDAQ:TLRY) and Curaleaf (OTCPK:CURLF). These are two of the largest operators in the sector and notably the two which have most emphasized their size. There are important differences between the two stocks which may play an important role in what to expect moving forward, as well as which stock is most suitable for your own portfolio. While TLRY is one of the top operators in Canada, CURLF is more likely to generate stronger returns over the long term.

Tilray And Curaleaf Stock Key Metrics

The first thing to note is that TLRY has a $2 billion market cap and CURLF has a $4 billion market cap. Whereas TLRY generated $152 million in revenue in the latest quarter (a $600 million annual run-rate), CURLF is guiding for $1.45 billion of revenue this year.

financial growth

Curaleaf 2022 Investor Presentation

In terms of profitability, TLRY is generating a 26% gross margin versus nearly 50% for CURLF.

gross margins

Cannabis Growth Portfolio

CURLF is also significantly more profitable on an adjusted EBITDA margin perspective.

adjusted EBITDA margin

Cannabis Growth Portfolio

How Are Tilray And Curaleaf Different?

TLRY is a Canadian operator and does not sell cannabis products in the United States except for CBD – this is because companies are not allowed to sell the cannabis plant in the country while also being listed on the major exchanges. What’s more, TLRY actually derives most of its revenues from non-cannabis products, with 57% of revenues coming from its “distribution” pharmaceutical segment.

net revenue by segment

Tilray 2022 Q1 Earnings Release

CURLF on the other hand is a cannabis operator in the United States. The company has a coast-to-coast footprint spanning 22 states.

coast to coast footprint

Curaleaf 2022 Investor Presentation

As just noted, TLRY’s stock is listed on the Nasdaq whereas CURLF is listed over the counter. TLRY has greater institutional ownership than CURLF, and not all brokerages enable the purchase of US cannabis stocks like CURLF.

Are Tilray And Curaleaf Worth Investing In?

Over the past several years, both stocks have provided their share of ups and downs.

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Data by YCharts

Looking forward, however, Wall Street is clearly more bullish on CURLF’s prospects. The average Wall St rating for TLRY is 3.3 out of 5.

Wall St Ratings

Seeking Alpha

The average price target of $9.10 per share represents over 100% upside.

price target

Seeking Alpha

CURLF on the other hand has an average rating of 4.57 out of 5.

wall st ratings

Seeking Alpha

The average price target of $15.3 per share represents over 170% potential upside.

price target

Seeking Alpha

On a more general level, one could argue that the cannabis sector is an important area for investing. States across the country are rapidly legalizing the plant for adult-use sales, including New Jersey which came online for adult-use sales last month. CURLF noted on their conference call that they are seeing “lines around the block” and expect to generate outsized margins from the state. This isn’t surprising for those familiar with the cannabis plant itself. Cannabis aficionados tout the absence of hangovers and calories relative to alcohol, as well as the various medical benefits ranging from insomnia, anxiety, and pain. Experienced investors know that the greatest returns can come from buying stocks when sentiment is the worst and investing as sentiment improves. Cannabis still suffers from a negative stigma, commonly associated with hard drugs, and the stock prices appear to reflect that pessimism. Over time though, I expect the cannabis plant to be embraced by the general public for its wide ranging applications – and for the stock prices to reflect that.

What Is The Outlook For TLRY And CURLF Stock?

Wall Street expects solid growth from both these stocks. TLRY is expected to grow at a roughly 20% clip over the next five years.

tilray consensus estimates

Seeking Alpha

CURLF is expected to grow notably faster:

curaleaf consensus estimates

Seeking Alpha

When looking at these outlooks, I have far greater confidence in the estimates for CURLF, as the growth is easier to understand. Whereas TLRY continues to compete in the smaller Canadian market, CURLF stands to benefit from ongoing legalizations at the state-level. Due to CURLF’s wide footprint, this growth catalyst can continue over the next decade.

Is Tilray Or Curaleaf Stock A Better Buy?

For most institutions, which have mandates blocking them from investing in US cannabis companies, they can only invest in TLRY. That is not necessarily a terrible thing, as TLRY is a top operator in Canada, as evidenced by its stronger adjusted EBITDA margins.

adjusted EBITDA margin

Cannabis Growth Portfolio

Moreover, TLRY trades at compelling multiples relative to the pack.

valuations

Cannabis Growth Portfolio

Yet is that a good enough reason to choose TLRY over CURLF, especially for retail investors who do not have such institutional mandates? I argue that the answer is no. For starters, TLRY trades at 4.3x revenues while CURLF trades at 3.9x revenues – a cheaper multiple in spite of stronger profit margins and a stronger growth story.

One of the main investment theses for TLRY is that it may prosper when the United States inevitably legalizes cannabis on the federal level, but why invest indirectly in the US cannabis sector when you can invest directly via buying CURLF, who already operates in the United States? Sure, TLRY owns a position in US MSO Medmen’s (OTCQB:MMNFF) convertible notes, but that makes up only a portion of the stock’s overall value. Over the long term, especially if one is counting on investing in the US cannabis growth story, CURLF is clearly the better buy.

On the flip side, if one is looking for near term trading potential, then TLRY may have more to offer. TLRY trades on the major exchanges and thus ironically has greater exposure to legalization-related volatility. For example, after the Democrats performed strongly in the 2020 elections, TLRY materially outperformed CURLF during that rally.

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Data by YCharts

What are some risks to consider? Both companies struggle with cash flow, but for different reasons. CURLF has far stronger profit margins, but due to 280e taxes, which restrict its ability to deduct operating expenses from taxable income, cash flow remains pressured. 280e taxes may go away upon federal legalization. TLRY is not hindered by 280e taxes, but is still guzzling more cash than CURLF due to having lower profit margins. Both companies may face near to medium term pricing pressure, largely because, in spite of legalization in their jurisdictions, cannabis use remains very low relative to alcohol use. Until cannabis is more widely received by the general public, legal operators may face intense competition from other operators as well as the illicit market. In closing, both TLRY and CURLF have a lot to offer in terms of investing in the cannabis sector. Long term investors are likely to favor CURLF due to the direct US cannabis exposure, but short term investors may prefer TLRY due to the greater liquidity.


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