US Cannabis Stocks Curaleaf, Green Thumb, Trulieve, and Harvest Health: 4th Straight Day of Gains

Curaleaf Holdings Inc. (CNSX:CURA), Green Thumb Industries Inc..(CNSX:GTII), Trulieve Cannabis Corp (CNSX:TRUL), and Harvest Health and Recreation Inc. (CNSX:HARV) are all pushing higher for the 4th straight day in a row as the Great Bifurcation continues between Canadian and US cannabis stock prices.

Among the factors driving the separation of value along national lines are escalating expectations in the United States for a national regulation to permit the de-prohibition of cannabis federally, and the as yet only modestly serviced and expanding markets in mega-states like California, Florida, Illinois and New York.

Todd Harrison from CB1 Capital Management discusses US cannabis MSO’s superior outlook for cannabis stock performance relative to Canadian cannabis companies.

Trulieve in particular has reported double digit growth in revenue for the last two quarters, and substantially improved earnings, though the majority of those earnings are derived from controversial “biological assets”. Trulieve was the subject of a largely discredited short-seller report that nonetheless spooked investors into driving the share price down from a recent high of $17.65 to a low of $12.06, though it has since recovered to ~$15 a share at the time of writing.

Trulieve CEO Kim Rivers talks about her company’s reported $0.55 per share in net income.

Trulieve reported Q3 2019 revenue of  $70.7 million in sales, up from $28.3 million in the same quarter of 2018, and $0.55 per share in net income after adding $90 million from biological assets.

Curaleaf has secured a term loan facility of US$275 million from a syndicate of lenders who will extract a heft 13 percent interest rate per year, giving the company financial firepower to accelerate the business, though with a slim gross margin of less than 2 percent, it comes with a high degree of probability that the company will remain unprofitable for the foreseeable future.

Curaleaf reported Q3 2018 sales revenue of $50.7 million, up a substantial 207 percent from the same period in the year prior. Curaleaf’s operations span Arizona, California, Connecticut, Florida, Kentucky, Maine, Maryland, Massachusetts,  New York, Nevada, Oregon, Ohio, Pennsylvania and Rhode Island, and with a quarter of a billion dollars now at its disposal for growth, the 13 percent coupon might be a worthwhile cost of capital.

Green Thumb Industries reported opening of its 9th retail location in the State of Pennsylvania earlier this month, as well as one in West Palm Beach, bringing its national retail location count to 36 for the end of 2019. The company’s most recent Q3 revenue saw growth from the same period in 2018 of 295 percent to $68 million from $17.2 million. Importantly, its cost of goods sold improved to 48 percent in Q3 2019 versus 54 percent in 2018.

Green Thumb reported cash on hand of $66 million, which isn’t a huge amount relative to Curaleaf’s capital resources, but Green Thumb Industries’ share price is ~50 percent higher than Curaleaf’s, giving its paper a premium in terms of acquisition currency.

And Harvest Health and Recreation, which could be the largest US Multi-state operator if it manages to close a batch of acquisitions that would see it operating 130 retail locations across 18 states, including vertically integrated production, extraction, packaging and full range of CPG product lines. Harvest announced the first $94 million closing of a long-awaited debt financing that will see it suffer a 15% cost of capital for the first $73  million with the remainder yielding 9.25 percent and due in 2022.

Steve White, CEO of Harvest Health and Recreation talks about his company’s national retail cannabis strategy.

Harvest Health’s latest financials saw it report Q3 revenue of US$33.1 million, up 196% over the same period in the year prior. Those numbers will expand dramatically if the company completes its top 2 mergers with Falcon International Corp for US$155 million and Verano Holdings in an all stock transaction whose total value will be determined when closed.

Canada’s largest operators, in stark contrast to these companies, have seen shrinking revenues, and missed sales targets, as well as been characterized by egregiously dilutive transactions that have some of the largest – Aurora Cannabis especially – looking at the potential for an existential threat to solidify in 2020.

US MSO’s are where the action is likely to be for investors in 2020.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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