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Why Has Curaleaf Lost 13.5% in August?

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As of August 17, Curaleaf Holdings (CURA) (CURLF) was trading at 9.00 Canadian dollars—a fall of 13.5% in August. Currently, the company trades at a discount of 42.9% from its 52-week high of 15.75 Canadian dollars. Curaleaf trades at a premium of 75.8% from its low of 5.12 Canadian dollars.

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Curaleaf’s lower stock price

On July 23, the FDA sent a warning letter to Curaleaf. The agency warned the company about selling “misbranded drugs.” The FDA alleged that the company promoted its CBD-based products to treat cancer, Alzheimer’s disease, chronic pain, and pet anxiety. However, the FDA said that Curaleaf doesn’t have substantial evidence. Following the warning letter, CVS Health (CVS) pulled some of Curaleaf’s CBD products from its stores. In response, Curaleaf removed all of the statements that violated the FDA’s regulations. The statements were also removed from the company’s website and social media platforms. Curaleaf stated that it already discontinued some of the products mentioned in the letter. The FDA’s warning letter caused Curaleaf stock to fall.

Canopy Growth (WEED), Tilray (TLRY), Aphria (APHA), and Cronos Group (CRON) reported their quarterly earnings in August. Canopy Growth, Tilray, and Cronos Group reported higher net losses. The wider net losses might have led to lower stock prices. Weakness in the broader equity market due to recession fears brought Curaleaf’s stock price down. The weakness was also due to yield curve inversion and the escalating trade war. The S&P 500 Index has fallen 3.1% in August.

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YTD performance

Despite the fall of 13.5% in August, Curaleaf has returned 39.3% YTD (year-to-date). So far, the company outperformed its peers and the broader equity market. Last month, Curaleaf signed an agreement to acquire GR Companies—also called “Grassroots Cannabis.” The acquisition would make Curaleaf the world’s largest cannabis company by revenues. To learn more, read Curaleaf Will Soon Be the World’s Largest Cannabis Company.

In comparison, Aphria (APHA) returned 4.1%. MedMen Enterprises (MMEN) and CannTrust Holdings’ (TRST) stock prices have fallen 33.8% and 57.5%, respectively. Overall, allegations of financial irregularities dragged MedMen’s stock price down.

Health Canada gave a non-compliance report on CannTrust’s greenhouse facility in Pelham, Ontario. The agency said that the company didn’t comply with specific regulations at its manufacturing facility in Vaughan, Ontario. The notifications caused CannTrust’s stock price to fall.

Analysts’ expectations and recommendations

For 2019, analysts expect Curaleaf’s revenues to rise 392% to $379.1 million. Analysts expect the company to become profitable in 2019. Very few cannabis companies are projected to make a profit this year. Analysts expect Curaleaf to report net profits of $28.5 million in 2019.

On July 22, Canaccord Genuity raised its target price from 14 Canadian dollars to 16 Canadian dollars. Eight Capital resumed its coverage with a “buy” rating and a target price of 20 Canadian dollars on July 2. In June, Compass Point initiated its coverage on Curaleaf with a “buy” rating and a target price of $13.

All of the eight analysts that cover Curaleaf rated the stock as “buy.” As of August 16, the company was trading at a discount of 107.9% from analysts’ target price of 18.71 Canadian dollars.

On August 13, MedMen reported its unaudited revenues for the fourth quarter of fiscal 2019. To learn more, read MedMen Reports Its Preliminary Revenue for Q4. To learn about analysts’ recommendations for CannTrust, read CannTrust: Current Target Price and Valuation Multiple. Notably, Curaleaf is scheduled to report its second-quarter earnings on August 29. Stay tuned for our earnings preview.

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