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Curaleaf, Canopy Growth, Green Thumb: Which Cannabis Stock is a Better Pick?
Stock Analysis & Ideas

Curaleaf, Canopy Growth, Green Thumb: Which Cannabis Stock is a Better Pick?

Optimism over cannabis legalization at the federal level in the U.S. has again triggered interest in marijuana stocks. Several cannabis stocks have plunged over the past 12 months due to the lack of movement toward federal legalization.  

Following clearance from the House Rules Committee on March 30, the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, now awaits a vote in the House of Representatives (expected to be held on April 1). The MORE Act aims to remove cannabis from the list of federally controlled substances in the U.S.

Amid the renewed hopes for federal legalization, we’ve used the TipRanks stock comparison tool for cannabis stocks to pit Curaleaf, Canopy Growth, and Green Thumb against each other to analyze which stock has better prospects.  

Curaleaf (OTC: CURLF) (TSE: CURA)

U.S. multi-state operator (MSO) Curaleaf operates 128 dispensaries and 26 cultivation sites in 23 states, with a focus on highly populated states including Arizona, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania.

In 2021, Curaleaf entered the European market by acquiring EMMAC Life Sciences Group (later rebranded as Curaleaf International).

With a coast-to-coast footprint in the U.S., continued innovation (147 new products launched in 2021), and enhanced cultivation and production facilities, Curaleaf is gearing up to boost its sales as additional states legalize cannabis.   

Earlier this month, Curaleaf reported a 39% year-over-year rise in its Q421 revenue to $320 million. Meanwhile, net loss per share narrowed to $0.04 from $0.06 in Q420. However, analysts were expecting revenue of $323.4 million and a net loss per share of $0.02.

The company’s 2022 revenue guidance of $1.4 billion-$1.5 billion also lagged analysts’ estimates of $1.57 billion.

Following the print, Cantor Fitzgerald analyst Pablo Zuanic commented that while Curaleaf missed the Q4 revenue estimates and 2022 revenue expectations, the sell-off in the stock over the last month indicates “unwarranted concerns not affecting fundamentals”.  

Zuanic believes that the company is well-placed to benefit from the “green wave” in the eastern states (with New Jersey expected to begin recreational sales this year). The analyst noted that while not at Green Thumb’s level, Curaleaf has also been expanding, rolling out its brands across its national footprint, and innovating across its brand portfolio.  

Zuanic concluded by saying, “We would make use of the pullback; and even though we continue to think the regulatory outlook remains the main driver of sentiment, EBITDA growth of 32-41% (based on the guidance range) would warrant share price upside.”

Zuanic maintained a Buy rating on the stock but lowered the price target to $15.50 from $16.50 to reflect the reduced estimates.

Overall, Curaleaf scores a Strong Buy consensus rating based on 10 Buys and one Hold. The average Curaleaf price target of $14.89 implies 105.95% upside potential from current levels.  

Canopy Growth (NASDAQ: CGC) (TSE: WEED)

Canopy Growth is a Canada-based company offering a wide range of cannabis and hemp-based products, as well as other consumer products for recreational and medical use. Alcoholic beverage maker Constellation Brands (STZ) has about a 36% stake in Canopy Growth.

Significant losses and lackluster revenue growth have been disappointing for Canopy’s investors. Despite cannabis legalization in Canada, Canopy has struggled to boost its business and improve its profitability.  

Canopy’s Q3 FY22 (ended December 31, 2021) revenue declined 7.4% to about C$141 million, as higher revenue from consumer products was offset by lower Canadian cannabis sales. Net loss per share narrowed to C$0.28 from C$2.43 in Q3 FY21 but was higher than analysts’ estimates of C$0.24.  

Meanwhile, Canopy believes that the U.S. market offers a great opportunity for long-term growth. The company is seeing strong momentum in its CBD (cannabidiol) business in the U.S. Also, Canopy has purchased the rights to buy multi-state operator Acreage Holdings and cannabis edibles maker Wana Brands once the U.S. legalizes marijuana.

Last month, Zuanic raised the price target on Canopy Growth stock to C$11.00 from C$9.60 while maintaining a Hold rating after he adopted a new approach to valuing the company.

The analyst continues to take non-cannabis assets at acquisition value but will now factor in the market value of the contingent stakes in U.S. cannabis assets.

Zuanic stated, “The stock is also supported by future actions that Constellation Brands (STZ/NC) may take; we continue to believe it would make more sense for STZ to acquire all of the Canopy Growth float rather than wait to strike the warrants when they are in-the-money. According to Bloomberg, STZ and Monster Beverages (MSNT/NC) are in “merger discussions”; we assume the much bigger scale of that combined company could make it easier to acquire Canopy Growth eventually.”

The analyst concluded that the improved price target on the stock reflects the market value of the contingent U.S. stakes and higher CPG sales estimates.

Meanwhile, the rest of the Street has a Moderate Sell consensus rating on the stock based on one Buy, four Holds, and four Sells. The average Canopy Growth price target of $8.49 suggests 12.01% upside potential from current levels.

Green Thumb Industries (OTC: GTBIF) (TSE: GTII)

Illinois-based Green Thumb is a multi-state operator with 17 manufacturing facilities, 76 retail locations, and operations across 15 U.S. states.

Q421 marked the sixth consecutive quarter of positive GAAP net income for Green Thumb, which is quite remarkable given that several other cannabis peers are struggling to become profitable.

Green Thumb’s Q421 revenue grew 37.4% year-over-year to $243.6 million, thanks to increased scale in the CPG and retail businesses, especially in Illinois and Pennsylvania. Further, Q4 revenue topped analysts’ expectations of $238.1 million. The company’s Q4 EPS declined 9% to $0.10 but exceeded analysts’ estimates of $0.08.

Needham analyst Matt McGinley noted that Green Thumb’s bottom line was under pressure due to lower prices and continued investments in corporate headcount and retail unit additions.

McGinley feels that while pricing likely stabilized in Q122, the company might have minimal top-line growth in Q1 given soft industry trends due to the impact of COVID-19 in January and macro pressures.

McGinley concluded, “We believe that GTI has the right strategic vision and record of strong execution to keep it on a path for continued profitable growth. GTI has among the best cash flow generation in the group, and we see substantially less risk to margin and revenue estimates at GTI given improvement in operating efficiency isn’t really a theme for the company into ’22 in the way that it is for many of its peers.”

The analyst reaffirmed a Buy rating on Green Thumb stock but lowered the price target to $33 from $36.

Other analysts on the Street are also bullish on Green Thumb, with a Strong Buy consensus rating backed by 11 unanimous Buys. The average Green Thumb price target of $41.53 implies 122.68% upside potential from current levels.

Conclusion

Cannabis is a relatively new sector, and the uncertainty around federal legalization and other regulations makes stocks in this space very volatile. Currently, analysts are bullish on U.S. MSOs Curaleaf and Green Thumb. Based on upside potential alone, Green Thumb stock seems to be a better cannabis pick.

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