A green rush into cannabis stocks is playing out today. Indeed, the cannabis sector continues to be among the hottest on the TSX right now.
The reason for this?
Well, legalization expectations in the U.S. are driving the growth prospects for these speculative investments higher. However, I think this catalyst is likely to be an uneven one, affecting various producers to various degrees.
Accordingly, here’s why Curaleaf Holdings (TSXV:CURA) remains one of my top cannabis picks today.
Excellent growth prospects
Boris Jordan, Curaleaf’s executive chairman, believes that marijuana legalization proceedings will not gain traction until Biden’s second term. However, there are expectations that cannabis legalization will eventually take hold south of the border.
Accordingly, companies like Curaleaf that are well positioned to take advantage of the growth prospects this provides should do better than domestic Canadian producers.
Why, you ask?
Well, unlike most TSX- or TSX Venture-traded cannabis companies, Curaleaf is a U.S. MSO. It’s entirely focused on the U.S. market and stands to be a direct beneficiary of such legislation. Curaleaf has operations coast to coast, and one of the most extensive networks in the U.S. among any cannabis player.
The company’s vertically integrated business model in the U.S. is also impressive. Curaleaf’s operations span the entire value chain. From cultivation to processing and retail sale, Curaleaf has built an impressive level of vertical integration in the U.S. market. This is unique among most Canadian-listed cannabis companies today.
The potential U.S. market growth has already manifested itself in the form of massive revenue growth of more than 200% year over year. Enough said.
Bottom line
Canadian producers looking to get into the U.S. market post-legalization may be too late. Companies like Curaleaf are building up massive networks and supply chains. Curaleaf’s vertically integrated model will be nearly impossible (or at least, extremely expensive) to replicate.
Accordingly, I’d stick with the winners in the U.S. market for those looking for exposure to this key catalyst.
I see the entry fee into the U.S. cannabis market as one that’s already extremely high. It’s only going to get higher should legalization legislation materialize. The Canadian market is great, but it’s still tiny relative to the growth potential the U.S. can provide.
Curaleaf’s valuation relative to Canadian cannabis players remains attractive. Given the outsized growth potential of Curlaef relative to its Canadian peers, the decision here is clear. Curaleaf is a winner in the cannabis space and is my only pick in this sector right now for investors looking to capitalize on U.S. legalization.
