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Curaleaf Reports Impressive Q4 Earnings Results


Mar. 25 2020, Published 7:33 a.m. ET

On Tuesday, Curaleaf Holdings (OTCMKTS:CURLF) reported its fourth-quarter earnings after the market closed. For the quarter, the company reported revenue of $75.46 million, which was marginally higher than analysts’ expectations of $75.33 million. The company’s adjusted EBITDA was $13.82 million, which was 37.3% higher than analysts’ estimate of $10.06 million.

Yesterday, Curaleaf also announced that it will acquire three Arrow Alternative Care dispensaries located in Connecticut. Currently, Curaleaf is one of the four licensed growers in the state. The acquisition will help the company vertically integrate its operations. The company will be able to deliver its products to customers directly and through its existing wholesale channels. The impressive fourth-quarter earnings and the acquisition of Arrow Alternative Care could drive Curaleaf’s stock price.

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Curaleaf’s revenue growth

Sequentially, Curaleaf’s revenue grew 22.1% from $61.82 million in the third quarter. Meanwhile, the revenue rose by 186.8% YoY (year-over-year) from $31.96 million in the fourth quarter of 2018. The revenue growth from the retail and wholesale segment and an increase in management fee income drove the company’s revenue.

The revenue from the retail and wholesale segment grew by 143.0% YoY. Opening eight dispensaries in Florida and acquiring three dispensaries in Arizona drove the company’s revenue. Meanwhile, an increase in the number of adult-use dispensaries in Massachusetts drove the company’s wholesale revenue. At the end of the quarter, Curaleaf operated 51 dispensaries compared to 36 at the end of 2018. During the quarter, the company’s management fee income also increased by 116.1% on a YoY basis.

EBITDA also rose

Curaleaf’s EBITDA improved significantly from a loss of $1.4 million in the fourth quarter of 2018 to a positive $13.8 million. The revenue growth drove the company’s EBITDA, which was partially offset by the lower gross margin and higher SG&A expenses. During the quarter, Curaleaf’s gross profits improved from $19.98 million in the fourth quarter of 2018 to $39.76 million. However, the gross margin fell from 62.5% to 52.7%. The increase in cultivation and processing costs due to opening new dispensaries and acquisitions lowered the company’s gross margin. During the same period, Curaleaf’s SG&A expenses increased from $25.8 million to $36.2 million.

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However, during the quarter, Curaleaf’s net loss rose from $16.5 million to $27.2 million. The increase in income tax and interest expense, higher D&A (depreciation and amortization) costs, and share-based compensation caused the company’s net losses to rise during the quarter. Compared to the same quarter of the previous year, the company’s income tax expense increased by $10.1 million. The D&A expenses increased by $8.9 million, while share-based compensation rose by $4.1 million. The company’s interest expenses also increased by $2.4 million during the quarter on a YoY basis.

Stock performance

Yesterday, Curaleaf stock increased by 24.6%. Optimism about the company’s fourth-quarter earnings and the strengthening broader equity market caused the stock price to rise. The S&P 500 Index and the Dow Jones Industrial Average rose by 9.4% and 11.4%, respectively. Despite yesterday’s rise, Curaleaf still trades 31.8% lower YTD. However, the company has outperformed its peers and cannabis ETFs this year.

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Charlotte’s Web Holdings (OTCMKTS:CWBHF), MedMen Enterprises (OTCMKTS:MMNFF), and Cresco Labs (OTCMKTS:CRLBF) have fallen by 42.2%, 57.9%, and 50.2% YTD, respectively. Meanwhile, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF have declined by 39.2% and 34.4%, respectively. Yesterday, Charlotte’s Web also reported its fourth-quarter earnings. To learn more, read Charlotte’s Web Stock Rose after Its Q4 Earnings.

My take on Curaleaf

Currently, only 33 states in the US have legalized marijuana for medical purposes, while 11 states have legalized recreational marijuana. Many other states want to legalize marijuana for both purposes. So, Curaleaf has considerable potential to expand. Also, marijuana sales have been rising in the US due to the lockdown. I think that Curaleaf, with its recent acquisition of Acres, Select, and BlueKudu, is well-positioned to capture the growing cannabis market in the US. I have been speaking positively about the stock since January. Curaleaf’s strong fourth-quarter performance confirms my confidence in the stock. So, I think that investors should utilize the recent fall due to weakness in the broader equity market to accumulate the stock.


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