The prospects for the cannabis industry have never looked better in the United States. With 17 states, two territories, and Washington, D.C., have already legalized recreational cannabis and 36 states and two territories allowing medical marijuana, this year could certainly be revolutionary for the industry. And now, with the reintroduction of the MORE Act by Judiciary Committee chairman Jerry Nadler, which proposes decriminalization of cannabis on a Federal level, the tension between the state and federal level regarding the legalization of cannabis is expected to end soon.
However, even though the democratically-controlled House is likely to pass the bill, the Senate is expected to be an obstacle. Republicans have previously stepped back in voting in favor of any marijuana reform measures. This disagreement in the chamber could cause a hindrance in the federal legalization process.
Amid this uncertainty, it is wise to stay away from cannabis operators that are not in a good position financially. Now with new players entering the space, the business climate for marijuana players could become even more competitive. As such, overvalued marijuana companies Curaleaf Holdings, Inc. (CURLF), Innovative Industrial Properties, Inc. (IIPR), and TerrAscend Corp. (TRSSF) with bleak financials should be avoided now.
Curaleaf Holdings, Inc. (CURLF)
CURLF is a leading provider of integrated medical and wellness cannabis in the United States. The company’s Cannabis Operations segment engages in the production and sale of cannabis through retail and wholesale channels, while the Non-Cannabis Operations segment provides cultivation, processing, and real estate leasing services. As of March 9, 2021, the company operated 101 dispensaries, 23 cultivation sites, and 30 processing sites.
This month, CURLF acquired Los Sueños Farms and its related entities, the largest outdoor grow in Colorado. The proposed transaction includes three Pueblo, Colorado outdoor cannabis grows facilities covering 66 acres of cultivation capacity, a 1,800-plant indoor grow, and two retail cannabis dispensary locations serving adult-use customers. Even though this should significantly expand CURLF’s presence in the Colorado market in the long term, it will lead to a reduction in its cash balance for the time being.
CURLF’s forward non-GAAP P/E currently stands at 105.27x, 345.9% higher than the industry average of 23.61x. The company’s forward EV/EBITDA of 28.61x is 75% higher than the industry average of 16.35x.
CURLF’s operating expenses grew by 69.9% year-over-year to $170.11 million in the first quarter ended March 31, 2021, while its total other expenses increased 180.7% year-over-year to $20.21 million. The company reported a net loss of $17.21 million, representing a 14% increase year-over-year. Its loss per share came in at $0.03 over this period. The stock has declined 11.1% over the past three months.
CURLF’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
The stock is also rated a D in Growth, Value, and Momentum. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #201 of 230 stocks.
To see the additional POWR Ratings for Stability, Sentiment, and Quality for CURLF, Click here.
Innovative Industrial Properties, Inc. (IIPR)
IIPR is engaged in the acquisition, ownership, and management of specialized industrial properties that are leased to state-licensed and experienced operators for their regulated medical-use cannabis facilities. As of May 27, 2021, the company owned 72 properties that were fully leased.
This month, IIPR acquired the property for $3.1 million (excluding transaction costs) in North Adams, Massachusetts, comprising approximately 70,000 square feet of industrial space. This led to a huge amount of cash outflow for the company, thereby reducing its cash balance.
Also, this month, concurrent with the closing of the purchase, the company entered into a long-term lease with Temescal Wellness of Massachusetts, LLC (Temescal) for cannabis cultivation and processing for which IIPR has agreed to provide reimbursement of up to $15.0 million. Although this should reap great benefits for the company in the future, it could significantly increase its near-term expenses.
The company’s trailing-12-month Price/Sales currently stands at 27.91x, 304.2% higher than the industry average of 6.90x. Its trailing-12-month EV/EBITDA of 37.08x is 63.8% higher than the industry average of 22.64x.
Although IIPR’s revenue grew by 103% year-over-year to $42.89 million in the first quarter ended March 31, 2021, it reported a year-over-year increase of 71.9% in its total expenses to $15.21 million. Its interest and other income came in at $124 thousand, representing a decline of 91.4% year-over-year. The stock has declined 3.2% over the past three months.
IIPR’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
The stock also has a D grade for Stability, Value, and Sentiment. Click here to see the additional POWR Ratings for IIPR. (Growth, Quality, and Momentum).
IIPR is ranked #15 of 22 stocks in the F-rated REITs – Industrial group.
TerrAscend Corp. (TRSSF)
Based in Mississauga, Canada, TRSSF provides quality products, brands, and services to the global cannabinoid market. It operates several businesses, including The Apothecarium which is a cannabis dispensary, Arise Bioscience Inc, which is a manufacturer and distributor of hemp-derived products, Ilera Healthcare that operates as Pennsylvania’s premier medical marijuana cultivator, and Valhalla Confections which deals in premium cannabis-infused edibles.
This month, TRSSF opened its second New Jersey medical cannabis dispensary called Apothecarium Maplewood with one of the state’s largest cultivation and manufacturing facilities. Although this could turn out to be top-performing dispensaries in the United States, it must have led to a considerable amount of cash outflow as an investment in the current period.
The company’s forward non-GAAP P/E of 102.31x is 333.3% higher than the industry average of 23.61x. Its trailing-12-month Price/Cash Flow of 63.37x is 211.1% higher than the industry average of 20.37x.
TRSSF’s operating expenses increased 55.1% year-over-year to $22.22 million for the first quarter ended March 31, 2020. The company’s net loss came in at $12.75 million, compared to a net loss of $10.31 million a year ago. Its loss per share came in at $0.08 during the period. Over the past three months, TRSSF’s stock has declined 15.6%.
TRSSF’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our POWR Ratings system. TRSSF has a D grade for Quality, Value, and Momentum. Among the 230 stocks in the Medical-Pharmaceuticals industry, it is ranked #162.
We have also graded TRSSF for Growth, Sentiment, and Stability. Click here to see them.
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CURLF shares were trading at $15.01 per share on Thursday afternoon, down $0.12 (-0.77%). Year-to-date, CURLF has gained 25.38%, versus a 12.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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