Many marijuana stocks might be underappreciated at the moment because of market pessimism about cannabis reforms in the U.S. But these growth stocks are part of a nascent industry that hasn't reached its full potential yet. Experts predict the industry could double in value to $72 billion by 2030. This sector is perfect for investors who have a long-term investment horizon.
With a little patience, these exciting stocks could bring huge returns over the long haul. Even in a limited legal U.S. market, where the drug is prohibited at the federal level, Massachusetts-based cannabis grower Curaleaf Holdings (CURLF -2.56%) has generated close to $1.2 billion in revenue over the last 12 months, outshining its peers. Let's dig into why buying this pot stock on the dip now could be favorable for investors.
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Timely growth strategies are working out
Consistent impressive quarterly performance is a sign that a company is doing everything right. Curaleaf's revenue grew 20% year over year to $313 million in the first quarter. Much of the credit can be given to its timely and strategically planned acquisitions in the last two years, new store openings, and new product launches. Some of these acquisitions include cannabis operators and brands like Select, Curaleaf NJ, Blue Kudu, Remedy, and Grassroots.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) keep rising every quarter, coming in at $72 million in Q1, a jump of 16% over the prior-year period. Curaleaf also generated an operating cash flow of $57 million in the quarter. The company opened 11 new stores just in the first quarter, bringing its total to 128 nationwide.
New state cannabis markets will be a big boost to revenue
Curaleaf's retail revenue got a year-over-year boost of 21% to $226 million, mainly from 26 new stores that opened in the year in the key markets of Arizona, Florida, and Pennsylvania.
These are limited license markets, meaning the state regulators issue licenses to a few selected cannabis companies. Establishing a strong presence in these markets will give Curaleaf a competitive advantage over its peers. Plus, Arizona, which legalized recreational cannabis last year, is a hot market now. With the acquisition of Bloom Dispensaries completed in Q1, Curaleaf is trying to create a stronghold in the state.
Curaleaf believes its position in the New York and New Jersey markets will lift its revenue in the coming years (both states legalized recreational cannabis last year). Management sees New Jersey's adult-use market as a promising one that could be worth $2.3 billion by 2026, according to projections by BDSA. The company ended its quarter with $243 million in cash and $584 million of outstanding debt net of unamortized debt discounts.
The company's management is confident it will achieve revenue targets of $1.4 billion to $1.5 billion in 2022, with an adjusted EBITDA margin of 28%.
High hopes from this pot stock
Though Curaleaf hasn't seen green in its bottom line, it has been consistently profitable from an operational standpoint. If this streak continues, it won't be long before it starts reporting earnings. It is the highest revenue-generating cannabis company in the U.S. right now. Peers Trulieve Cannabis and Green Thumb Industries are catching up to it, with revenue of $1 billion and $941 million respectively for the trailing 12 months.
With a portfolio of quality products and smart acquisitions (that are yet to show their full potential), Curaleaf is well suited to maintain its position as the top pot contender in the U.S. When it comes to a global reach, last year it completed acquiring and rebranding of Europe-based EMMAC Life Sciences Group to Curaleaf International. This acquisition gives Curaleaf access to "key medical cannabis markets, including the U.K., Germany, Italy, Spain, and Portugal."
It is impressive, as very few domestic operators have been able to expand in the international markets. An early mover advantage will work out in Curaleaf's favor, as estimates show the European market could grow at a compound annual rate of 29.6% to $37 billion by 2027.
I believe these factors led analysts to foresee a huge upside of 122% in the next 12 months for Curaleaf's stock. Federal legalization or not, as long as state legalization continues, Curaleaf is poised to grow -- it is a hot buy with enormous opportunities in the coming years.
