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Is Curaleaf a Good Buy in December?

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Curaleaf (CURA) (CURLF) stock is up year-to-date by 16.67% on the US OTC exchange. The stock is up 5.68% on the CSE (Canadian Securities Exchange). On December 16, the stock closed 54.39% below the 52-week high of $11.73 on the US OTC. The stock has taken a hit of 9.19% from $6.09 on November 29 to $5.53 on December 16. Curaleaf also closed 38.19% lower than its 52-week high of 11.73 Canadian dollars on the CSE.

FDA warning, increased regulatory scrutiny of CBD products

On November 25, the FDA released a consumer update highlighting the potential adverse events associated with CBD (cannabidiol) product consumption. The agency also highlighted concerns about the impact of CBD on fertility and on vulnerable populations such as children and pregnant or breastfeeding women. The FDA has already issued warning letters to 15 companies who were illegally selling CBD products.

Against this backdrop, the agency seems to be gearing up for increasing its regulatory oversight in the CBD space. This will increase the regulatory burden and associated expenses for CBD companies. Previously, as reported by CNBC, the FDA had issued a warning letter to Curaleaf in July 2019 for using unsubstantiated claims to sell CBD products. The company had claimed that its CBD products treated conditions such as cancer, opioid withdrawal, Alzheimer’s disease, pain, and anxiety in pets. In response, Curaleaf removed all the unproven claims from its website and social media platforms.

Curaleaf’s third-quarter financial performance

In the third quarter, Curaleaf’s revenues of $61.82 million were lower than the consensus estimate of $63 million. The third-quarter revenues, however, implied a year-over-year growth of 189.28% and sequential growth of 27%. The company’s non-GAAP EPS surpassed the consensus estimate by $0.02. Unlike most of its Canadian counterparts, Curaleaf managed to report a positive EBITDA of $9.0 million in the third quarter. The company has strengthened its position in states such as Florida, New Jersey, Arizona, and Massachusetts.

How Wall Street is pricing Curaleaf

A total of eight analysts are covering Curaleaf stock on the CSE on December 17. Of these, five are rating the company as “strong buy,” two are rating it as “buy,” and one is rating it as “hold.”  The analysts have given the stock a target price of 15.94 Canadian dollars, implying an upside potential of 198.62% compared to its last closing price. In November, the eight analysts covering Curaleaf had set a target price of 16.16 Canadian dollars.

A total of four analysts are covering Curaleaf on the US OTC exchange on December 17. Of these four analysts, one is rating the company as “strong buy,” while three are rating it as “buy.”  The analysts have given the stock a target price of $10.44, implying an upside potential of 88.78% compared to its last closing price. In November, three analysts were covering Curaleaf, and they had set a target price of $11.50.

How are analysts rating Curaleaf?

On December 3, as reported by TheFly, Needham analyst Matt McGinley rated Curaleaf as “buy” and set a target price of $7.25. He expects the company’s fiscal 2020 revenues to be higher by 200% year-over-year. McGinley has also projected the company’s fiscal 2020 EBITDA to be at least $225 million. He expects the company to focus more on post-merger integration and operational growth in fiscal 2020. The analyst also expects Curaleaf to optimize its dispensary network in fiscal 2020. This will increase the uptake of Curaleaf’s medical and recreational marijuana products across 19 states in the US.

On September 20, TheFly reported that MKM Partners analyst Bill Kirk had adopted a more somber recommendation for Curaleaf. The analyst rated the company as “sell” and set the target price as 5 Canadian dollars. Kirk raised concerns about the company’s ability to defend its market position since Curaleaf derives a significant portion of its retail sales from Florida. The analyst is worried about the decline in store revenues and increasing competition in Florida. Based on Yelp and Leafly data, Kirk claimed that Curaleaf products are rated lower than average by customers. The analyst, however, believes that the acquisitions of Select and Grassroots can help the company diversify its revenue base from Florida.

On September 13, Cowen analyst Vivien Azer rated Curaleaf as “outperform” with a target price of $10.50, as reported by TheFly. The analyst is confident about the company’s revenue growth opportunities in the US and Canadian cannabis markets.

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