While the world still fights the coronavirus, the pandemic-induced marijuana boom is taking the industry to great heights. Cannabis was deemed an “essential item” in the U.S. during the lockdown, which spiked sales. The momentum continues even this year, which is helping U.S. cannabis companies generate more revenue and profits.
Among them, Massachusetts-based Curaleaf Holdings (OTC:CURLF) and Florida-based Trulieve Cannabis (OTC:TCNNF) have the potential to be top contenders in the cannabis space. These two are smart with their growth strategies and have established themselves well in the U.S. cannabis market. Their recent first-quarter 2021 results are proof of that. Trulieve also grabbed a lot of attention in May after it announced its acquisition of Arizona-based cannabis company Harvest Health & Recreation (OTC:HRVSF) for a deal valued at $2.1 billion.
Let’s take a look at how 2021 is looking for these two pot companies and why I believe they have the potential to be millionaire makers.
Curaleaf’s smart growth strategies are paving its road to success
Smart and timely acquisitions have been a driving factor in Curaleaf’s outstanding revenue growth. In its first quarter of 2021 (ended March 31), revenue came in at $260 million, up 170% year over year. The company saw a surge in both retail and wholesale revenue. But a 231% boost in retail revenue to $188 million was particularly impressive, and can be attributed to organic growth across all its existing stores and contributions from six new stores across Florida, Maine, and Pennsylvania. The company had a total of 102 stores at the end of the first quarter, and even recorded some retail revenue in Arizona, where recreational marijuana became legal in January.
The company’s Select brand, a line of cannabis oil that it acquired from Cura Partners in February for $948.8 million, was mostly responsible for a 254% jump in wholesale revenue to $72 million from the year-ago period. Higher revenue brought in another quarter of positive earnings before interest, tax, depreciation, and amortization (EBITDA) of $63 million, a 213% year-over-year increase. Curaleaf is not profitable yet, but many of the acquisitions it completed in 2020 — including cannabis manufacturers and dispensaries across the nation, such as Curaleaf NJ, Arrow, MEOT, Remedy, Blue Kudu, and Alternative Therapies Group — are yet to show their full potential. These will help bolster revenue growth and bring in profits.
Trulieve Cannabis is on its way to becoming a powerhouse
Trulieve Cannabis grabbed a lot of attention with its decision to acquire Harvest Health, (which will give the company a stronghold over a thriving marijuana market in the Northeast, Southeast, and Southwest regions. This deal, subject to shareholder approval in the third quarter, will add key markets like Arizona, Pennsylvania, and Maryland to Trulieve’s national footprint. The company expects to generate close to $1.2 billion in revenue and $461 million in adjusted EBITDA in 2021 with the help of this acquisition, which is giving it access to 126 dispensaries in 11 states.
Trulieve has already shown a rocking start to 2021, recording revenue growth of 102% year over year to $194 million in its Q1 ended March 31. Its grip on the medical cannabis segment in its home state of Florida, where it has a total of 78 dispensaries, drove the growth. (Florida currently only allows medical cannabis.) For Q1, adjusted EBITDA also came in at $91 million, up 87% from the year-ago period despite an increase in operating expenses to $57 million from $29 million in Q1 2020. Management’s continued expansion plans led to a rise in operating expenses, but its positive EBITDA demonstrates it’s been able to grow revenue while managing its costs. Meanwhile, net profits — the company’s earnings after all the deductions — came in at $30 million, a 27% increase from the year-ago period.
For the full year of 2021, Trulieve expects to see revenue in the range of $815 million to $850 million and adjusted EBITDA in the range of $355 million to $375 million. Keep in mind that these figures exclude the impact of the Harvest acquisition.
Make way for the two millionaire makers
A company’s ability to thrive in an evolving industry can be determined by the way it uses its capital resources in employing smart growth strategies while keeping the balance sheet stable. Both Curaleaf and Trulieve have managed this. Curaleaf ended its Q1 with cash of $315 million, though it also has $340 million of outstanding debt net of unamortized debt discounts. (These debt/bond discounts are the difference between the face value of a bond and the amount paid for it by investors.) Meanwhile, Trulieve ended its Q1 with cash and cash equivalents of $162 million and total outstanding debt of $86 million.
Curaleaf has a lot of debt on its hands, but we can already see the growth it is deriving from its strategic acquisitions in 2020, which should help drive revenue and profits this year and beyond. Trulieve’s acquisition of Harvest, which I believe to be a very smart move, will also help it capture a wide chunk of the U.S. cannabis market, bringing in more earnings. These factors will allow both companies to clear off their outstanding debts.
State legalization is ramping up with the probability of federal legalization also rising. Stellar revenue growth, profits, smart growth strategies, stable balance sheets, and an expanding national footprint make a strong case for these two cannabis stocks to become millionaire makers over the long term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.