Curaleaf’s Weed Sales Were Flat, but Management Is Still Upbeat

Text size

The country’s largest cannabis chain,

Curaleaf Holdings
,
reported sequentially flat sales for the March quarter, with somewhat narrower cash flows. But sales were 20% higher year over year and management stuck by its forecast for 20% sales growth in 2022.

This year’s first quarter saw a pause in the growth of most companies that sell marijuana where states allow it. “The first quarter looks like it will be the low point for the industry, for some time,” Curaleaf chairman Boris Jordan told Barron’s.

Jordan sees several growth drivers kicking in now. After the end of March, New Jersey finally allowed its first recreational weed sales, so growth will jump at chains that operate there, like Curaleaf (ticker: CURLF). With 131 retail locations in 22 states, Curaleaf is the country’s biggest state-licensed cannabis operation. One of those locations is minutes from Philadelphia, in Bellmawr, New Jersey, where the dispensary that Curaleaf first opened as a medical marijuana operation is now revving at a $100 million a year revenue run rate. At two new recreational sales locations in Jersey, Curaleaf is building stores that will be physically larger than its Bellmawr shop.

Other profit drivers that Jordan’s betting on are expanded growing operations in Illinois, and a rollout of grow facilities and dispensaries in Florida, a large medical market where Curaleaf ranks second to

Trulieve Cannabis

(TCNNF).

Shares of U.S. operators began to sink long before most stocks in the latest downturn. In the over-the-counter market where Curaleaf and other American chains trade because of the drug’s federal illegality, the company’s shares are down 63% in the past 12 months, and 41% since December. After Monday night’s earnings report, Curaleaf was down 6% in Tuesday trading, to $5.28.

March quarter sales at Curaleaf were $313 million, compared with the year-earlier $260 million, and down a bit from December’s $320 million. The latest quarter had a net loss of $20 million, or 3 cents a share. Operating earnings, excluding noncash and one-time charges, were $73 million, down sequentially from $80 million in the December quarter.

The company reiterated its guidance for the year, which Curaleaf says will end with $1.45 billion in sales and $406 million in cash earnings.

Jordan says that investors in America’s multistate cannabis operators have been frustrated by Congress’s failure to advance marijuana reform bills. He is optimistic about the prospects for reform in Europe, however. Germany’s government has been discussing plans for adult recreational sales in recent days, and Jordan thinks Germany could start sales in 2024 that would make it the world’s largest federally-legal recreational market. The U.K. is now allowing prescription sales, and the Curaleaf chairman sees Britain becoming the largest national medical market, over the next few years.

Most analysts covering the stock rate it a Buy, but half a dozen have cut their price targets in recent days. Stifel analyst Andrew Partheniou is among those who call it a Buy, with an $18.50 price target. In a Monday night research note, though, he said he was disappointed by the March quarter profit, and pointed out that Curaleaf’s stock has traded at a higher multiple of its cash flows than shares of other U.S. operators.

Write to Bill Alpert at william.alpert@barrons.com