Multi-state operators (MSOs) are cannabis companies that span across multiple states in the US.  MSOs have outpaced their Canadian counterparts in the last couple of years.  

While Canadian pot producers are grappling with negative profit margins and tepid revenue growth, marijuana companies in the U.S. are racing towards profitability driven by the recent wave of cannabis legalization in the country and an expanding addressable market.

In this article, I am going to take a look at two MSOs, Curaleaf (CURLF - Get Rating) and Cresco Labs (CRLBF - Get Rating), to determine which is a better stock to buy right now.

Curaleaf stock is up 140% since 2019

Curaleaf has a presence in 23 states in the U.S. with more than 100 dispensaries. It recently announced a collaboration with Rolling Stone which should allow Curaleaf to improve the brand positioning of its Select group of products. Further, last month it also announced the acquisition of Los Suenos for $67 million which will help the company gain traction in Colorado.

In the first quarter of 2021, Curaleaf reported sales of $260 million with an adjusted EBITDA of $63 million. It raised $300 million in order to target growth markets such as New York and New Jersey as the states just legalized marijuana for recreational use.

Further, Curaleaf aims to launch medical marijuana products in Germany which is the largest market in Europe. Curaleaf has already established a presence in the region with the acquisition of Europe-based marijuana company Emmac Life Sciences.

Curaleaf’s sales in 2020 stood at $626.63 million which was an increase of 183% year over year compared to sales of $221 million in 2019. In the trailing 12-month period, Curaleaf sales were close to $800 million, indicating it’s on track to post $1 billion in annual sales in 2021.

Curaleaf stock has gained 140% since the start of 2019 valuing it at a market cap of $9.8 billion.

Cresco Labs stock is down 36% from record highs

Cresco Labs is another growth stock that should be on the radar of cannabis investors. In the first quarter of 2021, Cresco Labs increased sales by 169% year over year to $178.4 million, beating consensus revenue estimates of $171 million. It posted a GAAP loss of $24 million which was lower than its year ago loss of $35.5 million. The company’s adjusted EBITDA rose to $35 million, reflecting a 17% increase on a sequential basis.

Cresco CEO Charles Bachtell claimed the company maintains a leadership position in two of the top five states in the U.S. where cannabis is legal. Its wholesale revenue surged 151% to $96.5 million while retail sales almost tripled to $82.8 million year over year in Q1.

Similar to Curaleaf, even Cresco is a multistate operator that should generate $1 billion in sales in 2021 allowing it to benefit from high operating leverage and ending the year with an adjusted EBITDA margin of 30%.

The verdict

We can see that Curaleaf and Cresco Labs are two companies growing at a rapid pace making both the stocks interesting investments in 2021. However, while Curaleaf is valued at a trailing price to sales multiple of 15.7x, this ratio for Cresco Labs stands at 5.5x, which means the latter is significantly attractive based on valuation. Cresco Labs is also trading at a higher discount to price target estimates. In addition, Wall Street analysts’ average price target for Cresco Labs is 70% higher than where it’s currently trading, compared to Curaleaf’s average price target, which is 59% higher.

CURLF shares were trading at $14.37 per share on Thursday morning, up $0.31 (+2.21%). Year-to-date, CURLF has gained 20.03%, versus a 14.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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