Why Curaleaf Stock Got Mashed on Monday

What happened

In the early days of the marijuana industry, the name of the game was scale as ambitious companies fell over themselves buying assets to grow their businesses. They were often rewarded for doing so by equally eager investors.

That was then, this is now. Witness the tepid reaction to multi-state operator (MSO) Curealeaf’s (CURLF -1.68%) latest asset purchase; on Monday, the company’s share price slumped by nearly 2% on news it had sewn up a new acquisition.

So what

The acquisition is Four 20 Pharma, a medical marijuana producer and distributor based in Germany. Monday morning, Curaleaf said it has completed its agreement to acquire a 55% stake in the company.

While Germany specifically and Europe generally aren’t exactly hotbeds of cannabis legalization, the big country has sanctioned the drug for medicinal purposes. Its government recently launched a recreational marijuana legalization effort, but observers tend to believe it will be a matter of several years before such legislation is passed. Curaleaf has stated, rather optimistically, that this should occur in late 2023 or early the following year.

In the press release heralding the close of the deal, the company quoted its international president Miles Worne as saying that Four 20 “is an ideal asset to accelerate our growth in Germany as the country readies for its conversion from medical cannabis to adult-use.”

“Curaleaf International continues to build our platform in eight markets, and this deal further underscores our aspiration to be a major player in the European market and the global industry leader,” he added.

Now what

According to a regulatory filing cited by MJBizDaily.com, the Four 20 deal is worth 19.7 million euros ($19.7 million). Curaleaf investors are likely concerned that their chronically loss-making company would be better served putting capital into projects in the U.S. market — where there is at least partial recreational legalization.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.