Will This $7.00 Stock Become the Biggest Player in Pot?
Marijuana Business, Stocks, Finance, & Investing August 16, 2019 MJ Shareholders 0
This Pot Stock Could Deliver Big Returns
The cannabis industry is known for its growth potential. But with so many companies vying for a slice of action, it’s hard to say who will be biggest winner in the long run.
But if you want to know which company is going to be the biggest player in the cannabis industry in the near term, I think there is a very strong contender: Curaleaf Holdings Inc (OTCMKTS:CURLF).
Curaleaf Holdings Inc is a vertically integrated cannabis operator headquartered in Wakefield, Massachusetts. The company went public through a reverse takeover in October 2018.
Curaleaf Holdings Inc: A Fast-Growing Pot Company
Now, I know what you are thinking: there are quite a few established pot companies trading on the New York Stock Exchange and the Nasdaq. So why would an over-the-counter pot stock become the biggest player in the industry?
As I mentioned earlier, one of the main reasons why investors like pot stocks in the industry’s growth potential. And when it comes to delivering high growth rates, Curaleaf Holdings Inc does not disappoint.
In the first quarter of 2019, the company generated $40.7 million in managed revenue. The amount represents a whopping 260% increase from the $11.3 million generated in the year-ago period. (Source: “Curaleaf Reports First Quarter 2019 Financial and Operational Results,” Curaleaf Holdings Inc, May 30, 2019.)
At the same time, Curaleaf’s gross profit from cannabis sales totaled $10.6 million for the quarter, marking a staggering 1,144% increase year-over-year.
During the quarter, the company opened seven new dispensaries in key markets such as New York, Maryland, and Florida.
Building a Cannabis Empire
Still, what would really put CURLF stock in the lead is the company’s acquisition strategy.
On May 1, 2019, Curaleaf Holdings announced that it would acquire Cura Partners, Inc. in an all-stock transaction valued at $948.8 million. Cura Partners is the owner of “Select,” which is one of the most well-known cannabis wholesale brands in the U.S. In particular, Select’s THC products are sold in more than 900 retailers. (Source: “Curaleaf to Acquire Select, the Leading Cannabis Wholesale Brand in the U.S.,” Curaleaf Holdings Inc, May 1, 2019.)
This acquisition would be highly complementary in nature. For one, Curaleaf is a leading retailer, while Select is a leading wholesale brand. The combination of these two businesses is expected to deliver significant synergies, including a 50%+ reduction in input costs and a 25%+ reduction in processing costs. (Source: “Acquisition of Select,” Curaleaf Holdings Inc, last accessed August 14, 2019.)
Moreover, Curaleaf has a strong presence on the East Coast, while Select is a leading brand in key Western states. Therefore, with this acquisition, Curaleaf Holdings Inc would immediately diversify its geographical footprint.
Notably, Curaleaf and Select’s revenues added up to over $200.0 million in 2018, meaning the combined company would be the largest player in the U.S. cannabis industry. (Source: Ibid.)
The best part is, Curaleaf Holdings Inc doesn’t plan to stop just there. Last month, the company announced that it would acquire GR Companies, Inc. (also known as Grassroots) in a cash and stock deal valued at around $875 million. (Source: “Curaleaf to Acquire Grassroots, Creating the World’s Largest Cannabis Company,” Curaleaf Holdings Inc, July 17, 2019.)
Grassroots is deeply entrenched in the Midwest with 61 dispensary licenses, 20 of which are operational. It also has 17 cultivation and processing licenses, which would help facilitate Curaleaf’s nationwide expansion.
Again, this would be a complementary deal because Grassroots is deeply entrenched in markets in which Curaleaf currently does not operate. Once Curaleaf completes the acquisitions of Select and Grassroots, it will have 131 dispensary licenses, 68 operational locations, 20 cultivation sites, and 26 processing facilities.
And as you’d expect, the deal would make Curaleaf an even bigger player in terms of financials. Adding the contributions from Select and Grassroots, the pro forma revenue of Curaleaf would be the highest in the industry in both 2018 and the first quarter of 2019. (Source: “Acquisition of Grassroots,” Curaleaf Holdings Inc, last accessed August 14, 2019.)
Curaleaf Holdings Inc (OTCMKTS:CURLF) Stock Chart
Chart courtesy of StockCharts.com
Like many pot stocks, Curaleaf Holdings Inc had a strong rally in the first quarter of 2019, but pared quite a bit of those gains in the second quarter. Now, CURLF stock trades at around $7.00 apiece. If these announced acquisitions go through as planned and the company takes the throne as the biggest player in the pot industry, its share price could go much, much higher.
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