The US federal government considers marijuana a Schedule I drug along with heroin and cocaine. Schedule I classification means that state laws define weed as a drug with a higher potential for abuse and little medical benefit. benefit. Meanwhile, in 2022, 37 US states legalized pot for medical purposes, and 19 legalized recreational use.
In the last few years, cannabis businesses have grown like a weed, and the leaders are trading on the stock market. Pot stocks are highly speculative because their success depends on US federal legalization, which remains elusive in August 2022. Differences between federal and state laws create serious barriers for growing businesses, holding back traditional bank financing and customer service. Federal laws prohibit dispensaries in states that have legalized marijuana from accepting credit cards. They can only collect cash or charge customers’ debit cards. Transporting pot across some state lines from the point of production to points of consumption can result in severe penalties for trafficking when crossing state lines where pot remains illegal.
As of early August 2022, Curaleaf Holdings, Inc. ( OTCPK:CURLF ) is the leading cannabis company with the highest market cap compared to 29 companies in the sector. One catalyst could push stocks higher after a steady decline since early 2021.
Stocks of pots went up in smoke – CURLF is no exception
Tom Petty, the late rock and roll icon, wrote: “Waiting is the hardest part“Investors in the bank’s shares took”it’s on faith“and took”it’s to the heart” as they have watched their investments soar to nothing since early 2021.
Were there high hopes the new Biden administration will legalize weed in early 2021, shortly after the 46th president is sworn in. However, dull the force of inaction has forced the leading cannabis companies to burn funds, as well as the absence of a legislative initiative stoned asset class.
Curaleaf Holdings is the leading cannabis operator in the US and its stock has been disappointing investors since February 2021. high.
The chart shows the decline from the February high of $18.38 to the mid-July 2022 low of $4.7945. After falling 73.9%, the stock was trading just above its August 8 low of $5.67.
Tilray (TLRY), another leading stock, fared even worse, falling from $67 at the start of 2021 to $3 in July, a 95.5% decline. TLRY shares hit $300 in September 2018.
CURLF has a leading market capitalization of 29 companies in the sector
Newest Top Cannabis Public Companies:
The chart shows that of the 29 companies in the cannabis sector, CURLF leads with a market capitalization of $4.06 billion, representing 17.32% of the total value of the top 29 companies. CURL is the only company with a market capitalization of more than $2.5 billion.
The main catalyst: Hlack of US federal tax revenue
CURLF has a significant market share, but the stock’s performance has been miserable. However, there is hope that buzz will return to stocks, pushing them higher if the US government decides its thirst for profits is not over.
The latest piece of legislation, and a victory for the Biden administration, is the scaled-down Build Back Better program aimed at fighting climate change, raising corporate taxes and giving back money to the IRS to increase tax revenue. The US marijuana industry currently suffers from a lack of coordination between the states and the federal government that would open the floodgates to traditional financing and revenue collection. Additionally, it would allow the federal government to levy an excise tax on pot, paying for new spending and reducing the deficit. The most difficult catalyst for CURLF and many other cannabis operators is the actions of Washington, DC. The wait has been the hardest and it continues in August 2022.
CURLF receives good reviews and operates in two segments
Quantitative Alpha rating for CURLF shares is currently suspended.
Factor ratings have improved, but revisions remain problematic, likely due to cash burn. The company receives the highest growth rating.
For the first quarter of 2022, the company reported normalized actual EPS of 2.0 cents per share, but beat GAAP actual EPS by one penny. Revenue was $313.07 million, which was $2.64 million below consensus estimates.
The market expected CURL to earn one cent on a normalized EPS basis and a loss of three cents per GAAP share in the second quarter on revenue consensus of $335.30 million. The amount was 337.553 million dollars. While net loss per share was four cents, CURLF grew second-quarter revenue by 8%, adjusted EBITDA of $86 million was up 18% sequentially and up 2% year-over-year, and the company earned 12 million dollars of operating activity. cash flow for the first half of 2022. As in all businesses, inflation affected results as “Selling and administrative expenses due to increased headcount to support new store openings, higher levels of R&D-related expenses, and higher sales and marketing expenses, as well as increased professional fees.“
The data isn’t too positive, but the prospect of legalization makes the stock a buy at $5.65 per share on August 8.
Curaleaf operates in two segments: cannabis and non-cannabis. The Cannabis segment produces and sells marijuana through retail and wholesale channels. The Non-Cannabis segment provides professional services, including cultivation, processing, retail consulting, back office administration, intellectual property licensing, real estate leasing, and licensing of medical and adult cannabis under management service agreements.
As of June 16, 2022, CURLF operated 134 dispensaries and 26 cultivation sites in twenty-two US states. Further growth of the cannabis sector depends on US federal legalization. The non-marijuana sector could add to revenue and growth in the coming quarters, given the company’s know-how in marijuana services. Moreover, CURLF’s inexpensive market capitalization and leadership position make the company an attractive takeover candidate that can deliver earnings growth for the acquirer.
Cream of the crop – Top of the bud with risk as tobacco companies bide their time to vacuum up the residue
CURLF is an attractive company in a struggling industry that is waiting for the US federal government to legalize its products. The prospect of new tax revenue streams from legalization could open the floodgates of profits for the marijuana industry, with top companies capturing the lion’s share. It may also attract new well-capitalized companies looking to buy into the sector through aggressive acquisitions.
Tobacco companies are leading candidates for M&A activity.
The chart shows two of the top three tobacco companies, Philip Morris ( PM ) and Altria ( MO ), with a combined market capitalization of $231.26 billion, or just over 50% of the 16 largest publicly traded tobacco and cigarette companies. Meanwhile, six of the top 16 are US companies, but the other four have market capitalizations below $1.3 billion, which is lower than CURLF. PM and MO are candidates to make aggressive acquisitions in the cannabis sector after federal legalization, with CURLF a prime target.
Bank investors have been patient and persevering as stocks have made lower highs and lower lows since early 2021, when hopes for speedy legalization faded. The wait has been the hardest part, but it could be worth it if Washington decides the tax revenue is too hard to ignore.