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Andrew Willis: Most investors who bought pot stocks before 2021 probably regret it, but the feelings are complicated. On the one hand, stock prices have fallen but the prospect of cannabis legalization remains – especially in the large U.S. market.
Currently, however, cannabis buyers in the States still need to navigate a messy patchwork of laws, branding and testing standards. And they better carry a bunch of cash because there’s no paying by card with federal banking laws.
Sector strategist Kristoffer Inton has been seeing pressure from the illicit market on returns companies like Curaleaf (CURA), however, the SAFE banking act could help Curaleaf on the credit card front, while investors greatly overemphasize the lack of progress on federal legalization. With 152 dispensaries in 19 states, Curaleaf’s stores should see more business if they make them less of a black market experience.
For Morningstar, I’m Andrew Willis.
Bulls Say
- Curaleaf’s acquisition of EMMAC Life Sciences gives it cheap Portugal production and a base to build its European business around.
- Curaleaf gives investors pure-play exposure to the United States, the largest market in the world by potential sales.
- Curaleaf boasts a coast-to-coast footprint, which positions it well for the fast-growing U.S. market.
Bears Say
- Sales growth for legal sellers like Curaleaf are challenged by the lack of taxes in the illicit market.
- The decision to exit California, Colorado, and Oregon, which are states with too much competition, reflects the challenges to profitability in the legal market.
- States have incentives to maximize tax revenue for products like alcohol, tobacco, and cannabis. Although alcohol and tobacco companies successfully pass higher taxes on to consumers, cannabis companies lack the brand power to do the same.
