Cantor Fitzgerald Raises Curaleaf Target: 'Prime Way To Play' US Cannabis Legalization

Curaleaf Holdings Inc. CURLF has been one of the hottest cannabis MSO stocks in recent months, and one Wall Street analyst said Tuesday that the stock may be headed even higher following the closing of its Grassroots acquisition.

Cantor Fitzgerald analyst Pablo Zuanic reiterated his neutral rating for Curaleaf and raised his price target from $7.50 to $10.

The Thesis: In July, Curaleaf announced the closing of its $875 million buyout of Chicago-based cannabis company Grassroots. Grassroots provides entry for Curaleaf into the Illinois cannabis market and increases Curaleaf’s footprint in the Pennsylvania market as well.

The Grassroots deal makes Curaleaf the world’s largest cannabis company by revenue.

Zuanic estimates Grassroots will account for about 30% of Curaleaf’s pro-forma revenue. Curaleaf has done an exceptional job at targeting the top positions in the US states where it operates, he said, citing how its strategic M&A moves and its organic growth investments have created a geographically diversified business with potential optionality in years ahead. This includes key ballot initiatives in Arizona and New Jersey this November.

Zuanic said he understands why investors see Curaleaf as the "prime way to play" US cannabis deregulation.

Unfortunately for Curaleaf investors, additional upside may be limited due to the stock’s stretched valuation relative to MSO peers.

“Such track record, combined with a clean B/S, and positive EBITDA, have resulted in the highest MSO valuation multiple (19x CY21 FactSet consensus EBITDA vs. 10-15x for direct MSO peers and 8x for mostly single-state Trulieve),” Zuanic wrote.

Curaleaf is reporting earnings on Aug. 17, and Zuanic is calling for an EPS loss of 2 cents on revenue of $110 million, up 126% from a year ago.

Benzinga’s Take: Given all the uncertainty that remains in the cannabis space in the near-term, it may be wise for cannabis bulls to take a diversified approach to investing.

Consider buying a basket of Canadian legal producers as well as US multi-state operators, such as Curaleaf, that have high-quality balance sheets and leading market shares.

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