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Better Growth Stock: Curaleaf vs. GrowGeneration

By Sushree Mohanty – Dec 21, 2021 at 6:56AM

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Should you choose a pure-play cannabis company or a pick-and-shovel cannabis company?

The U.S. cannabis industry is getting hotter as state legalization ramps up. Next year could see more states legalizing either medical or recreational cannabis, and with that opportunities will arise for the domestic players. Investors have quite a lot of good stocks to choose from, be it cannabis growers or companies related to the sector.

Among these, Massachusetts-based Curaleaf Holdings (CURLF -0.88%) is outshining its peers. Even though it is not profitable it has reported positive earnings before interest, tax, depreciation, and amortization (EBITDA) for the last few quarters, and also brought in $1.1 billion in revenue over the trailing 12 months. Peers Green Thumb Industries and Trulieve Cannabis have around $827 million and $801 million in revenue, respectively, over the same period.

Although it's not a cannabis grower, Colorado-based GrowGeneration (GRWG 2.63%) has also outperformed this year and is profitable as well. But there are some factors to consider before deciding which stock to invest in for 2022. Let's take a look at which among these two is the best growth stock for investors over the long term.

A person's hand seen planting seedlings.

Image source: Getty Images.

The case for Curaleaf

Curaleaf is slowly climbing to become one of the top contenders in the cannabis space. In its recent third quarter, total revenue jumped 74% year-over-year to $317 million. Retail revenue of $224 million contributed around 71% of the total, while wholesale revenue added another $92 million. The revenue jump also brought in another quarter of positive adjusted EBITDA of $71 million versus $42 million in the year-ago quarter.

The company opened two new stores in the quarter, and recently opened its ninth dispensary in Arizona, bringing its total to 112 nationally. Management is excited about the New York and Connecticut adult-use market, where it expects retail sales to start by early 2023.

The company feels well prepared (with three dispensaries) for the New Jersey market, where recreational sales are slated to begin in the first quarter of 2022.

Curaleaf also has an international presence, particularly in the burgeoning European market. This market could grow at a compound annual rate of 29.6% through 2027 to $37 billion. This could work in Curaleaf's favor to grow its revenue and EBITDA.

The company made some smart acquisitions in the last two years that have yet to show their full potential. One of them is the acquisition of hemp cannabidiol (CBD) company Grassroots (completed in July 2020) that expanded its presence in 23 states with 135 dispensary licenses.

Curaleaf hasn't seen green in its bottom line yet but with its drastic revenue growth and wise acquisition strategies, it will get to profitability soon.

The case for GrowGeneration

GrowGeneration is not a cannabis grower, it's a hydroponics supplier that sells products and equipment used by marijuana growers. It is also a small company with a market cap of $804 million but it has set up a vast presence with 62 stores nationally. Even with 62 stores, the company is growing revenue at a drastic rate. In its recently reported third quarter, revenue jumped from $55 million in the year-ago period to $116 million. Their Q3 GAAP net income this year jumped to $4 million compared to $3.3 million in Q3 2020.

In the first nine months of 2021, GrowGeneration nearly tripled its revenue to $332 million from the $131 million in the same period a year ago. Net profits also jumped from $3.8 million (for the nine months ended Sept. 30, 2020) to $16.9 million nine months ended September 30.

The company plans to open another 15 to 20 locations next year, which will boost sales further. And it plans to earn $15 million in revenue annually from its recent acquisition of Washington-based Hoagtech Hydroponics. 

Which is the better growth stock?

GrowGeneration's management believes some headwinds (like delays in the opening of dispensaries and the implementation of recreational markets in the states that recently legalized it) could impact full-year results. The company revised the guidance as follows:

  • Full-year 2021 revenue to come in the range of $435 million to $440 million 
  • Adjusted EBITDA for the year to be in a range of $41 million to $43 million

While GrowGeneration revised its full-year guidance, Curaleaf is confident of achieving its revenue guidance. The company expects revenue for the year to come mostly at the lower end of the range of $1.2 billion to $1.3 billion. As state legalization ramps up both companies are poised to benefit in the prospering U.S. pot market.

Even though both companies are outstanding growth stocks, being a pure-play cannabis company, Curaleaf is the better stock to invest in right now. The company is close to achieving more than $1 billion in revenue and profitability (hopefully by next year), making it the better growth stock to consider for the long term.

Sushree Mohanty has no position in any of the stocks mentioned. The Motley Fool owns and recommends Green Thumb Industries, GrowGeneration Corp, and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

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