Multistate cannabis operator Curaleaf (OTC:CURLF) is among the largest players in the industry. Its aggressive growth strategy focuses on expansion and big acquisitions. Today, the company's operations span 23 states and include 96 dispensaries. Curaleaf is a beast and offers investors a way to tap into the industry's explosive growth.

But it's not without risks, either. All that growth costs money and can be difficult to manage and integrate. The company continuously posts losses and burns through cash -- which can be a quick way to run into trouble in the industry. Is Curaleaf an exciting growth stock to invest in, or could the company's aggressive strategy be its undoing? Let's take a look and see which scenario is more likely, and whether you should consider buying shares of Curaleaf today.

Cannabis leaf showing on green traffic light.

Image source: Getty Images.

The company's sales numbers are incredible

Curaleaf is an attractive buy for growth investors because that's all the company does -- grow. Over the past three quarters, its revenue of $396.4 million has more than doubled the $145.6 million reported during the prior-year period. In 2020, its acquisitions of Grassroots and Cura Partners (which owned the Select brand) were integral to its expansion efforts and growth, putting its operations in more states and helping to pad its top line in the process.

As impressive as its sales numbers are right now, for the third quarter (ending Sept. 30), Curaleaf calculated that its pro forma revenue was $215.3 million. ("Pro forma" revenue is a what-if scenario to show what results would look like if they included sales numbers from its acquisitions for the full period.) Extrapolating that over three quarters would put the company at well over $640 million in sales; over a year, that number would be about $860 million.

With sales numbers that strong, it's easy to see why Curaleaf captivates growth investors. But that doesn't mean all is well with the company ...

Why Curaleaf remains a risky buy

As electrifying as all that growth is, it can also be costly. Integrating and eliminating inefficiencies is a time-consuming process. And in the meantime, the company continues to incur more expenses than absolutely necessary. Over the trailing 12 months, Curaleaf has reported negative free cash flow of $110 million, which could be problematic -- as of the end of Q3, it reported cash on hand of just $84.6 million.

That doesn't mean Curaleaf is going to run out of money -- only that it will likely need to raise some more if it plans to continue with its expansion.  Earlier this month, the company announced an offering of 16.5 million shares, which will generate close to $215 million in cash flow. But issuing more shares will push the stock price down, because there will be more sellers than buyers.

The company says it is going to use the money "for working capital and general corporate purposes." It's a generic reason that essentially says the business needs the money to keep its operations running -- and to keep growing. Sometimes companies raise money if they're planning a big expansion or to make a big acquisition. In Curaleaf's case, it's just to help with its day-to-day operations. Too many shares outstanding could destroy the stock's value and send it crashing down, and that's the biggest risk Curaleaf investors need to worry about today, given its high rate of cash burn.

Although the company is doing a great job of growing its sales, that growth isn't sustainable. Curaleaf isn't generating enough cash to do it on its own.

Is Curaleaf stock a buy despite these challenges?

Over the past 12 months, shares of Curaleaf have doubled while the Horizons Marijuana Life Sciences ETF is up by about 21%. While issuing shares to fund growth can be a problem, the effects will be delayed if the stock's price is rising. And the good news is that there's excitement in the marijuana industry right now, with four more states (Arizona, Montana, New Jersey, and South Dakota) having legalized marijuana for recreational use in November and a Democratic government soon to be in place at the federal level that could help pass meaningful marijuana reform.

Between its solid growth numbers and the bullishness in the industry right now, Curaleaf should be in OK shape for the foreseeable future, even given its need for cash. While issuing new shares is likely to drop the stock price in the near term, Curaleaf's long-term trajectory remains strong. And with the positives outweighing the negatives, investors will likely continue buying up the stock anyway.

That doesn't mean insufficient cash flow can be ignored, because it could lead to long-term problems. However, as long as the company is growing at an incredible rate and isn't struggling to attract investors, its stock should continue to perform well. And that's why, for investors interested in growth in the marijuana industry, Curaleaf still looks like a great buy today.