On August 8, 2023, I wrote about Curaleaf (OTCPK:CURLF) on In search of Alpha. At the moment, CURLF shares have been on the $5.67 degree, with the corporate’s market cap main the sector at simply over $4 billion. I identified that at $4 billion, “CURLF’s cheap market cap and management place make the corporate a lovely takeover candidate that might present accretive returns for an acquirer.” I additionally wrote, “Pot traders have been affected person and have persevered because the shares had made decrease highs and decrease lows since early 2021 when the hopes for immediate legalization went up in smoke. The ready has been the toughest half, however it could possibly be worthwhile if Washington, D.C., decides the tax receipts are too laborious to disregard.“
Washington has made no strikes towards federal legalization, and the ready for these holding CURLF and different pot sector traders has been downright painful. Since August 2022, CURLF shares have greater than halved in worth because the shares and sector have decayed in a bearish abyss.
New lows on CURLF shares
CURLF shares reached a $2.54 low in March 2020 earlier than rallying to a excessive of $18.38 in February 2021, the place the inventory ran out of upside steam.
The chart highlights the sample of decrease highs and decrease lows that took CURLF shares to a brand new $2.32 low on April 10, 2023. The shares put in a bearish key reversal sample on the month-to-month chart in December 2022 when it traded at a better excessive than November and closed the month beneath November’s low.
Whereas CURLF lately introduced the completion of its Deseret Wellness acquisition in a inventory and money transaction for about $20 million, the inventory fell as CURLF delayed its 2022 This fall and full-year outcomes and convention name. The corporate acknowledged it wants extra time “because of the complexities of changing three years of financials from IFRS to U.S. GAAP coinciding with yr and quarter-end reporting, and the evaluate of the remedy of assorted accounting issues.” Whereas CURLF stated it could launch monetary statements “someday in April,” there was no phrase on any date.
Delaying earnings possible weighed on the inventory over the previous week, however CURL has been in a bearish spiral because the February 2021 excessive.
Curaleaf’s market cap slips
In August 2022, CURLF was the market cap chief of 29 publicly-traded hashish firms. The mixed worth of 29 firms was $23.44 billion, with CURLF main with $4.06 billion.
The chart exhibits CURL was near Inexperienced Thumb Industries and Tilray with a $1.71 billion market cap, an over 57.9% decline from the August degree. In the meantime, the market cap of 40 firms within the asset class was $12.85 billion, 45.2% beneath the August degree of 29 firms.
Hashish shares have underperformed the general inventory market over the interval, and pot has been a shedding funding since early 2021. On Monday, April 10, Tilray (TLRY) reported weaker-than-expected earnings. TLRY reached $76 per share in February 2021 and was on the $2.52 degree on April 11, simply barely above the March 15, $2.28 low.
The 2 major problems with hashish sector
The 2 components weighing on the hashish sector are:
- No motion on the federal entrance: The final 2022 U.S. election handed a slim majority to Republicans within the Home of Representatives. After two years of a majority by Democrats, the chances of federal marijuana legalization declined underneath the present Washington, D.C., authorities. With out federal legalization, hashish firms face monetary challenges and can’t settle for bank cards for cost. No motion by the U.S. Congress is bearish for the leisure and medical marijuana enterprise.
- The unlawful market continues to thrive – authorized firms can not compete: Whereas a rising variety of U.S. states have legalized pot, illicit gross sales proceed. States tax hashish, whereas unlawful sellers don’t, offering unlawful sellers with a major benefit. Furthermore, the Mexican cartels have turn into extra highly effective from drug exports to the U.S., and home illicit marijuana manufacturing continues to compete with authorized weed. In the meantime, foreign drug cartels have funded U.S.-based marijuana farms.
The development just isn’t your pal
At round $2.40 per share on April 11, CURLF shares proceed to make decrease highs and decrease lows as they do not want right into a bearish abyss. The bearish development since February 2021 has not been any traders’ pal. In August 2022, In search of Alpha’s issue grades had improved:
As of April 11, 2023, they largely worsened:
Valuation and revisions improved, however the delay of This fall earnings reviews and the convention name might trigger a failing grade when the corporate lastly releases its numbers. In the meantime, valuation improved due to the numerous share worth decline, however time will inform if the money burn from the newest Deseret Wellness acquisitions takes a toll on the corporate.
Furthermore, in a extremely shaky inventory market, traders avoid firms that can’t earn money. CURLF is unlikely to revenue in This fall and 2022 after posting losses in Q1 by Q3.
The 2 unlikely components that may trigger a rebound
The 2 components that might foster a sudden restoration in CURLF and different hashish shares is an epiphany in Washington, D.C., that creates federal legalization and a sudden cease of the move of unlawful marijuana into the U.S., making the one avenue for purchases the authorized dispensaries. In the meantime, the Republican majority within the Home of Representatives and regulation enforcement’s issues about DUI and DWI components and different marijuana-related points make widespread federal legalization extremely unlikely. In Las Vegas, Nevada, the place leisure and medical pot is authorized, smoking pot in lodges, on on line casino properties, or on the road is unlawful. With over 40 million vacationers yearly, the present legal guidelines don’t encourage authorized consumption. Las Vegas is introducing authorized consumption lounges, however the setting stays difficult for authorized dispensaries.
Money burn, no pun meant, is a number one issue dealing with publicly-traded pot firms. Whereas the market cap of the 40 main firms fell 45.1%, regardless that the sector added eleven firms, tobacco has performed much better.
In August 2022, the market cap of the highest 16 tobacco and cigarette firms was as follows:
On April 11, 2023, the market expanded by three to 19 firms:
The chart exhibits the whole market cap was barely greater, with good points within the chief, Philip Morris (PM), and third place Altria (MO).
As I wrote in August 2022:
The chart highlights two of the main three tobacco firms, Philip Morris and Altria, with a mixed market cap of $231.26 billion or simply over 50% of the highest 16 publicly-traded tobacco and cigarette firms. In the meantime, six of the highest 16 are US firms, however the different 4 have market caps beneath $1.3 billion, decrease than CURLF. PM and MO are candidates to make aggressive acquisitions within the hashish sector upon Federal legalization, and CURLF is a number one goal.
In April 2023, PM and MO had a mixed worth of $234.18 billion, barely greater than in August 2022. The market cap of the 40 main publicly-traded hashish firms at $12.85 is 5.5% of the 2 prime tobacco firms. The underside line is the bearish development in hashish firms makes the potential for acquisitions excessive. Nonetheless, because the bearish development continues, there isn’t any motive for the highest tobacco firms to be aggressive because the targets turn into cheaper day by day.
The outlook for CURLF and the opposite main pot firms stays cloudy in a haze of federal political inaction and competitors from the unlawful however very worthwhile sector. The pot shares flamed to highs in early 2021 and proceed to burn out in April 2023. The one potential hope could also be a takeover by cash-rich tobacco firms.
Editor’s Notice: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please concentrate on the dangers related to these shares.