As one of the most ‘MSO’ of all of the MSO’s – Curaleaf is in at least 13 states to varying degrees. Their presence in each ranges from simply providing management services to existing dispensaries/cultivators, all the way to complete vertical integration: This outfit undeniably has a broad footprint in the US cannabis space.

Despite some effusive coverage from the regular financial types (that regurgitate news releases and paraphrases MD&A’s), I’ve never swooned so much for them. Bold moves into new territory and expanding ops and product lines is one thing. Actually making money at it is another.

The deal with CVS to provide CBD is definitely press release worthy. But let’s have a closer look at the financials………

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• Retail revenues beginning to supplant wholesale revenue due to store openings in several states. The promise is margin enhancement.
• Gross margins stagnant. Considering they’re in build (and they use this as a reason for it), nothing much to see here. Yet. 
• 44% margin on dope, 57% on management fees.
• They must have an army of employees – G&A is running almost as high as sales this past quarter, more than $3MM/month in wages alone.
• Ah, the joys of MVS (‘multiple voting shares’). Despite these MVS’s being only 25% of the float, they control 85% of the total shareholder votes. Translation: you’ll do exactly what management tells you to do shareholder. Sit down, and shut up.
• God, my eyes. $310MM in stock option overhang. Also wears 1MM unpriced RSU’s (restricted stock units), and another $50MM in warrants nested within a debenture.  
• CuraLeaf Massachusetts (CLMA) was very, very expensive. It’s a long and winding tale as well, captured in Notes 4, 6, 9, 10, and 17. And a related party transaction as well. Would take me a day to track and do a valuation (I thumbnail it around $52MM, but this might only be half. I know, that’s not exactly the precision you should expect – but the deal is complex). 
• Speaking of which, the guts of it are in Note 10 (Senior Unsecured Notes – 2019). Which, was a $2.5MM short term loan at 14%. Yep pricy. But the 5MM warrants at $0.11 that went with it ($55MM) is, like, well. Ack. It leaves me without words. When I recover, I’ll have a crap ton of questions on it. If I was a shareholder…..
• 8 pending acquisitions in progress. Curious why the Blackjack deal in Nevada hasn’t closed, looks like it might have gotten the go-ahead in April of this year.
• Speaking of transactions, $50MM will get you a 50k sqft production facility in Mass, and a service agreement with three dispensaries there (not ownership of them). Wonder if that comes with a Gucci logo. At that price, it should. And indicative of what it costs to be an early mover (as corporations go).
• They’ve definitely spent the most entering Nevada, where I see at least $150MM going in to buy existing operations. 
• The Arizona build seems odd, inasmuch as dispensaries there operate on a ‘non-profit’ basis. I need to do some research around AZ and the implications. Interesting that they paid $18MM – only to operate a single dispensary there. Perhaps a push out of their fee-for-service model.
• $130MM in goodwill and intangibles, mainly in ‘licenses’. Yuck.

With almost a half a billion shares (fully diluted), the market cap on this one is massive. Especially for a company with $9MM/month in sales from some 32 selling storefronts (that I can see). 

Really good disclosure around operations in the MD&A. Standout really. It also reveals they use regions that are relatively fallow for profitability in cannabis to lever their consulting arm. Given that management fees derived from that business is 30% of their total revenues – it looks to be a decent performing division.

All of this said – given their footprint: sales suck. For an outfit with this presence – incremental and new store sales isn’t terribly impressive.

I don’t have the same level of conversancy with this outfit as with some other MSO’s, that’s changing. Given their market cap and market presence, they’ll be and are impossible to ignore. 

This one is pretty simple though in divining the short path to a higher share price valuation. 

They need to sell a heck of a lot more weed.

The preceding is the opinion of the author, and in no way constitutes a recommendation to buy or sell any security or derivative. The author hold no position in CuraLeaf.