Right now, I think Curaleaf (TSXV:CURA) is the Canadian cannabis company every investor ought to focus on. Simply put, there’s no better option for investors to pick right now in terms of publicly traded companies in this sector.
I’m going to discuss why I think there continues to be upside with this stock. After all, Curaleaf has skyrocketed more than 500% from its March lows. Such a rapid increase in such a short amount of time is likely to give many investors pause. That said, I think U.S. legalization (the key secular driver underpinning this capital appreciation) has become highly probable. Therefore, I think Curaleaf has a long runway for growth from here.
U.S. legalization a real catalyst for Curaleaf
With an incoming Biden administration and a Democrat-run senate come expectations that legalization could materialize sooner than expected in the United States. This is absolutely massive news and has had a profound impact on stock prices in this sector accordingly.
Indeed, the U.S. market is the key to massive upside for these cannabis companies. Some would say the United States is the only market that matters for cannabis companies. As I touched on in an article I wrote in 2018, Canada’s cannabis market is roughly on par with that of California. The U.S. market is essentially 10 Canadas waiting to for someone to come and grab market share.
Legalization in Canada really only paved the way for expectations that this could be repeated south of the border. Much of the previous run-up we saw in the stock prices of Canadian-listed cannabis companies was linked to this sentiment in the past. Few catalysts have come about in recent years to indicate legalization might be possible. That is, until we saw a shift in government control recently.
Here’s the good news for Curaleaf. Unlike most of its Canadian peers, Curaleaf has a shot at dominating the U.S. market. This is a company with a tremendous and growing foothold in the United States. Indeed, Curaleaf is one of a kind when it comes to Canadian cannabis companies in that it focuses primarily on the U.S. market. This is probably the best way for investors looking to trade cannabis producers on this secular driver to do so right now.
Vertically integrated business model highly enviable
Unlike many of its Canadian peers, Curaleaf has done a great deal of work in building what looks to be a sustainable, and successful, fully vertically integrated business model. This isn’t just a producer of a commodity with poor fundamentals. (Actually, the U.S. has much better supply/demand fundamentals right now, so this is a bit of a moot point.) Curaleaf has substantial operations in the production of value-added products with much higher margins than the underlying commodity itself.
Additionally, nearly 100 dispensaries in the U.S., and many more to come, position this company well to take advantage of a majority of the value created in its supply chain. This is a company that has built out its network for years and has the expertise and the management team to build a profitable company in the future.
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned.