By 2025, the cannabis industry in the U.S. could be worth more than $41 billion. That's more than three times the size it was in 2019 ($13.2 billion). The fast-growing space is a great place to invest if you are looking for growth opportunities.
One standout in the sector is Curaleaf Holdings (CURLF 0.74%). With incredible sales growth and operations in nearly two dozen states across the U.S., this company hasn't been shy about expanding. But is now a good time to invest in Curaleaf, or has the stock's rapid ascent over the past year made it too expensive? Let's take a closer look at its numbers and whether it is worth investing in today.
Acquisitions are fueling the company's growth
What attracts many investors to Curaleaf is the company's aggressive approach to growing its brand. This month, the cannabis producer announced the opening of its 100th dispensary, located in Jacksonville, Fla. Curaleaf is among the top multistate operators in the country and a great investment if you're bullish on more states legalizing recreational marijuana.
A year ago, the company completed the acquisition of Cura Partners. At that point, it was only operating in 14 states and had just 53 dispensaries. It closed on another big acquisition in July 2020, bringing Grassroots into the fold, which brought its total number of states to the current 23.
All that wheeling and dealing has helped the company significantly grow its top line. When Curaleaf reported its third-quarter results on Nov. 17, its sales of $182.4 million for the period ending Sept. 30 were up 195% year over year. On a pro forma basis, including the revenue of Grassroots for the full quarter, that number would have been $215.3 million, or 18% higher.
Acquisitions are key to the company's growth, especially since it's not possible to move pot across state lines as long as marijuana remains illegal in the U.S. under federal law. Although Curaleaf's cash balance of $84.6 million as of the end of Q3 isn't going to be enough to make any big buys, its strong share price could help fund more acquisitions in the future. In the past year, shares of Curaleaf are up 180%, dwarfing the Horizons Marijuana Life Sciences ETF and its 61% returns during that time.
But is there more growth possible from here?
How Curaleaf's valuation compares to its peers
Because many cannabis companies are not profitable, the price-to-sales (P/S) ratio is key to comparing them. Curaleaf is profitable at an adjusted EBITDA level, but the company is still in the red in terms of its net income. Here's how Curaleaf stacks up against rivals Trulieve Cannabis, Acreage Holdings, and Planet 13 when comparing their forward P/S multiples:
Curaleaf is the most expensive of the stocks on this list. Investors may be turned off at the prospect of investing in the company for that reason. The pot stock is also trading near its 52-week high for the year. But the problem with sales-based valuations, not least those that look a year in advance, is that many things can change.
As more states legalize marijuana, or if the federal government moves the substance out of its Schedule 1 drug classification, the growth prospects for the industry can change in a hurry. As a result, pot stocks can be a bit of a moving target because their multiples can change quickly, especially if there is a big acquisition.
Should you invest in Curaleaf?
Curaleaf is one of the top cannabis companies in the industry. It offers investors a great way to tap into the industry's potential growth opportunities. In the company's most recent quarter, sales nearly tripled from the prior-year period. As the industry continues to expand and Curaleaf moves into more states, it wouldn't be unrealistic to see the company continue growing at those kinds of rates.
New York, one of the biggest potential markets, is looking at legalizing recreational pot. That's just one place where Curaleaf could generate more growth in the near future. New Jersey is another, with Governor Phil Murphy signing three bills on Monday that will officially legalize pot in that state. Recreational pot sales in the Garden State could begin later this year. But only 15 states have legalized marijuana for recreational use so far, meaning there are still many more opportunities out there. That's one reason P/S and other multiples aren't always helpful in evaluating a fast-growing stock like Curaleaf.
As an industry leader, Curaleaf may be your best bet in the marijuana space right now. You can be sure that as new markets open up, the cannabis producer will be aggressive in pursuing them. Although it has already generated some great returns for investors in the past year, there's little reason to doubt that the stock can go even higher. If you are bullish on the marijuana industry in the U.S., this is a stock you will want to have in your portfolio.