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Why Did Curaleaf Report a Mixed Q1 Performance?

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On Monday, Curaleaf Holdings (OTCMKTS:CURLF) reported its first-quarter earnings after the market closed. For the quarter ended on March 31, the company reported revenue of $96.5 million, which fell short of analysts’ expectations of $98.41 million. However, the adjusted EBITDA and adjusted EPS were higher than expected. Curaleaf reported an adjusted EBITDA of $20.0 million, which was higher than analysts’ expectation of $15.7 million. The company’s adjusted loss per share was $0.03—better than analysts’ expectation of a loss per share of $0.05. The company was trading 0.5% lower in the after-market hours. The weak first-quarter sales led to a fall in the company’s stock price. Let’s look at Curaleaf’s first-quarter earnings in more detail.

Curaleaf’s revenue rose sequentially

For the quarter, Curaleaf reported revenue of $98.41 million—a rise of 173.4% and 27.9% from the first and fourth quarter of 2019, respectively. The growth in the retail, wholesale, and management fee segment’s sales drove the company’s revenue. Sequentially, the retail segment’s revenue grew 17.5% to $56.6 million, while its wholesale business grew 115.3% to $20.4 million. The management fee segment’s revenue also grew by 9.4% to $19.4 million. 

The retail segment’s revenue grew by 197% YoY. Meanwhile, organic growth, opening new dispensaries, and acquiring dispensaries in Arizona and Nevada drove the company’s revenue. The addition of HMS/MI businesses in Maryland also contributed to the segment’s revenue growth. Curaleaf’s wholesale business grew 134% YoY due to the acquisition of the Select brand and increased adult-use dispensaries in Massachusetts. During the quarter, the company’s management fee rose by 160%.

Curaleaf’s adjusted EBITDA rises

Curaleaf’s adjusted EBITDA increased from a negative $2.8 million in the first quarter of 2019 and $13.8 million in the fourth quarter of 2019 to $20.0 million. The revenue growth and increased gross margin drove the company’s EBITDA. For the quarter, the company’s operating margin was 43% compared to 38% in the fourth quarter of 2019. More cultivation and processing facilities increased the company’s gross margin.

Moving to net losses, Curaleaf reported a net loss of $15.5 million, which increased from a net loss of $10.8 million in the previous year’s quarter. The amount was an improvement from a net loss of $27.2 million in the fourth quarter of 2019. The higher income tax, increase in D&A (depreciation and amortization) expenses, higher share-based compensation, and an increase in one-time expenses related to acquisitions and business development droved the company’s net losses. 

Liquidity

At the end of the quarter, Curaleaf had $176.4 million in cash. The debt after unamortized debt discounts was $281.5 million. Also, the company had 507.7 million shares outstanding at the end of the quarter. 

Curaleaf launches Nano Gummies

On Monday, Curaleaf launched Nano Gummies under the Curaleaf and Select brands. The company has utilized Nano-emulsion technology to develop the product for faster and efficient consumption of cannabinoids. Curaleaf announced that the Select brand Nano Gummies will be available in Arizona’s Curaleaf dispensaries starting next week. Meanwhile, the company plans to expand the product to all eight states by the end of the second quarter.

Stock performance

So far this year, Curaleaf has returned 1.7%. The impressive fourth-quarter performance and optimism about its recent acquisitions led to a rise in the company’s stock price. Meanwhile, Curaleaf has outperformed its peers and cannabis ETFs. YTD, MedMen Enterprises (OTCMKTS:MMNFF), Charlotte’s Web Holdings (NYSEARCA:CWEB), and Cresco Labs (OTCMKTS:CRLBF) have all fallen by 58.6%, 39.2%, and 36.6%, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has also fallen by 24.4%.

Although Curaleaf’s sales were below the expectations, I’m still bullish on the stock. The company lowered its expenses and reported a higher-than-expected adjusted EBITDA. Also, I think that US cannabis can only rise from here with more states beginning to warm up to cannabis. Curaleaf has innovative products, a strong brand, and acquisitions. The company is well equipped to drive its sales higher. So, I think that investors with longer-term prospects should acquire the stock.

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