The COVID-19 pandemic has been dismantling almost every sector of the economy globally. However, there might be a silver lining in this dark cloud for U.S. marijuana producer (backed by Moscow banking veteran Boris Jordan) Curaleaf Holdings Inc. Reports reveal that the company’s marijuana sales spiked, and most of the states in the U.S. say that cannabis is an essential service according to an analyst’s note to clients on March 25.
Curaleaf stock CURLF, -10.50%; CURA, -12.36% trades over the counter in the United States. It gained 2.7% during the March 25 trading session. Shares have appreciated by 44% in the last five days, while the Cannabis ETF THCX, +7.14%, rose 28%.
In its earnings call on March 24, the Wakefield, Mass., pot company reported that most of its 54 stores are still operational. They are currently avoiding delivery and offering on-premising filling of most of their cannabis orders.
Curaleaf confirmed that it had experienced about 20% boost in sales, which collaborates with data from other analysts, which suggests that there is a 30% growth in the marijuana sector as a result of the COVID-19 crisis. One analyst has a buy on the name with a C$22 target price for its Canadian Securities Exchange-listed shares.
Before the company’s earnings on March 25, Curaleaf posted an operational update related to COVID-19. It addressed measures that have already implemented to protect all its employees, which include increased sanitation and sanitation, among many other efforts. So far, the company is yet to see disruptions on the cultivation and processing side.
Curaleaf also revised its 2020 outlook in the wake of the pandemic telling its investors that their stores were closed in Massachusetts for now. Thus, it is expected that sales will plunge in Nevada due to decreased tourism. The company operates two medical dispensaries in Massachusetts, which will be allowed to operate. But, their recreational stores will be closed.
According to Aaron Grey, Alliance Global Partners analyst, Massachusetts, will remain to be the leading state where Curaleaf’s revenues are hurt. However, uncertainty remains even as the company provides other options for customers buying weed. Grey wrote in a note to clients Wednesday:
“All in, we continue to believe cannabis is well-positioned versus other industries to outperform on a relative basis during unknowns on the coronavirus impact and believe Curaleaf is well-positioned given the company’s strong balance sheet and a majority of its revenues coming from markets that have deemed cannabis essential.”
Grey rates Curaleaf a buy, and he also lowered his target price to C$12 from C$14 on March 25.
According to Matt Bottomley, a Canaccord Genuity analyst:
“The state shelter-in-place orders and other shutdown measures could very possibly create moderate-to-high headwinds for the marijuana sector depending on the length/magnitude of these measures.”
Bottomley acknowledges that many US-based companies like marijuana producer Curaleaf have posted strong sales in March amid the coronavirus pandemic. For now, experts and analysts are monitoring all operators for impact in the form of supply chain disruptions and forced curfews, among many other things.
Vivien Azer, a Cowen analyst, wrote in a note to clients on March 25 that her team was quite careful about the company’s vape sales amid COVID-19 as:
“medical professionals are cautioning against vaping.” Curaleaf’s acquisition of the vape company Select closed in February, but its sales were hurt in 2019 because of a rise in vape-related illnesses. Azer says trends have “started to show some improvement.”
Select said that it has exposure in Oregon, California, Arizona, and Nevada. On the other hand, Canaccord Genuity says that it is the number one brand by marijuana oil revenue in many west coast markets.
Stifel GMP’s Fagan explained that his team is convinced that Select’s revenue will rebound in Q2 2020 since it will get infused into Curaleaf’s platform. The integration is already happening in Michigan, Maryland, and Colorado. Also, it plans to launch new products like gummies in the states where it is active.
According to Bottomley, Cureleaf’s balance sheet is attractive when compared to most of its rivals in the United States. It closed $300 million of senior secured term debt. His team’s estimates after eliminating the cash that marijuana producer Curaleaf has committed for acquisitions, it has over $260 million of unallocated money on hand.
This represents one of the most robust balance sheets in the industry as the company continues to set up its leading U.S. exposure. Bottomley finally rated Curaleaf a ‘speculative’ buy with a price target of C$15 down from C$16.