I attended the Benzinga Cannabis Capital Conference in Toronto last week. You’ve never seen so many people so serious about something so intoxicating.
But the folks at the conference were there to make money, not party. Let me share three stocks that were the buzz of the conference.
Those stocks are Curaleaf Holdings (OTCQX: CURLF), Acreage Holdings (OTCQX: ACRGF) and MedMen Enterprises (OTCQX: MMNFF). Here’s how these stocks have done this year …
You can see Curaleaf is up an astounding 135% so far this year, leaving Acreage and MedMen in the dust. For now. Is this going to continue, or will the other two catch up?
Let’s start with Curaleaf, since it’s doing so well. I attended the Curaleaf presentation on day two of the Benzinga conference. Neil Davidson, the CFO, made a great case for his company.
For starters, Curaleaf has the largest “footprint” of any single branded cannabis retail store in the United States. It operates 42 dispensaries, 12 cultivation sites and nine processing sites.
Curaleaf grows, processes and sells pot. This vertically integrated approach is common in the U.S. cannabis industry. That’s because cannabis is still illegal on a federal level — for now — and can’t be shipped across state lines.
Anyway, Curaleaf focuses on highly populated states with limited cannabis retail licenses. And Curaleaf does its best to make sure it gets the lion’s share of those licenses. It has operations in Massachusetts, New Jersey, New York and Florida.
The company has $364 million in cash, and revenues grew 49% quarter-over-quarter and 408% year-over-year. The company is sill losing money on a per-share basis, but its cash flow is ramping up fast.
So you can see why this stock is firing on all cylinders.
On the second day of the conference, I attended the MedMen company presentation.
MedMen is all about real estate and branding. The company owns and operates 23 retail stores under the MedMen brand name in California, Nevada, Arizona, Illinois and New York, and is acquiring 10 others. It has a total of 82 licenses in 12 states.
MedMen aims to open dispensaries in wealthy areas with lots of foot traffic. It is specifically targeting cannabis users who don’t mind paying extra, and wants to build the brand as their go-to cannabis of choice.
And that’s driving revenue. Second-quarter revenues jumped 39.1% over the previous quarter, to $30 million. Third-quarter revenues come out next month.
So why is the stock underperforming? I can think of two reasons.
First, the company is expanding so fast, it is bleeding money, and it just did a massive fund-raising. It opened a $250 million convertible credit facility with Gotham Green Partners. This could be dilutive to shares.
But more troubling is the management shakeup. The company’s COO and general counsel, who is also a member of the board, both resigned. What’s that about? I don’t know, but I think the market is expecting another shoe to drop.
Going into the conference, I knew Acreage Holdings is a cannabis retailer. But I wasn’t that familiar with it. Then, during a discussion, Jon Najarian of CNBC walked out on stage and told the crowd that Canopy Growth (NYSE: CGC), the biggest cannabis company in the world, was buying Acreage — sort of.
It’s an unusual deal …
Canopy will pay $3.4 billion to buy Acreage when cannabis becomes legal on a federal level in the United States. Provided that marijuana gets the green light from Uncle Sam in the next seven years, the deal goes through.
- Canopy Growth investors love this deal, even though it’s priced at 21.5 times Acreage’s consensus 2020 EBITDA.
- Acreage investors seem to hate it. And I can’t blame them. We’re used to U.S. cannabis stocks being in a legal gray area, but this is a shade we haven’t quite seen before.
In the meantime, Acreage’s footprint spans 19 states. It has 19 dispensaries open, and that should be 55 by the end of the year, under a total of 79 retail dispensary licenses. It also has 22 cultivation and processing sites. It, like Curaleaf, is another vertical operator.
Curaleaf, MedMen and Acreage are the three biggest multistate U.S. cannabis companies.
To me, it’s important to realize this market is very fragmented. There are great companies out there — too many companies. There is going to be more consolidation going forward.
And Vahan Ajamian, managing director of analyst relations at MedMen, was on a panel about new opportunities in the volatile cannabis market. He expressed the opinion that mergers and acquisitions in the U.S. would proceed more rapidly than we’ve seen in Canada.
Really? Then game on!
Our task, as investors, will be to position ourselves to make the most of it.
Some 92% of Americans now support legal marijuana. Are you taking advantage of cannabis investment opportunities, or are you still on the fence? I’d love to get your thoughts.
All the best,