It’s been a tough earnings season for cannabis companies that have reported wider-than-expected losses, but Massachusetts-based Curaleaf was able to buck that trend by selling investors on its big acquisitions setting the company up for growth.
Despite reporting a second-quarter loss of 5 cents a share compared to a 1 cent loss expected by analysts polled by Bloomberg, Curaleaf (CURLF) saw shares surge by as much as 10% in trading Wednesday before closing 6% higher.
Unlike the investor reaction to competitor Canopy Growth’s recent wider-than-expected net loss, which sent shares plummeting 15% earlier this month, Curaleaf not only topped revenue expectations with a $48.5 million top-line number, but also reported positive quarterly adjusted EBITDA for the first time in company history.
Looking forward, CEO Joe Lusardi said the trend of positive EBITDA should continue as the more than $2 billion Curaleaf has poured into acquisitions that will help drive revenue growth. The company lined up deals to acquire West Coast-focused Cura Partners for nearly $1 billion in May and Chicago-based Grassroots to gain exposure to Illinois which plans to launch legal recreational marijuana sales in January. The company said at least a piece of the widening net loss was attributable to those non-cash acquisition charges as well as depreciation, “that frankly investors don’t care about.”
“We’ll continue to grow the top line, profitably. We’ll continue to drive EBITDA as our scale becomes more obvious and we get the benefits of all the work we’ve done to grow our company,” he told Yahoo Finance in an interview on YFi PM.
Eye on Massachusetts
As for catalysts to close out the year and prepare for 2020, beyond Illinois becoming the 11th state to legalize recreational marijuana, Lusardi noted that Curaleaf’s home state of Massachusetts will become more important as the recreational marijuana market matures.
“We believe we’ll get our [Massachusetts] adult-use licenses later this year and that’ll set us up with a huge tailwind going into 2020,” he said. “If you look at the data out of Massachusetts and the stores that are open, the numbers are fantastic so we’re very optimistic that that will be one of the most important cannabis markets next year, and we’’ll be a big player in that space.”
But for a sector that has been beaten down heavily these past two months as investors question the profitability of cannabis companies, Curaleaf’s jump following earnings is notable. Lusardi endorsed the cannabis sector overall, however, despite the pain in 2019 that’s embodied by the Alternative Harvest MJ ETF’s 33% decline over the past six months.
“The thesis is not complicated, we believe that U.S. cannabis is a $100 billion industry. It was only an $11 billion regulated [industry] last year,” he said. “We will continue to grow the top line, convert people from the black market to the legal market and if you believe in that thesis, you should buy these stocks.”