Curaleaf Earnings: Cutting Valuation After Weak Results, but Shares Are Still Undervalued

We were disappointed by no-moat Curaleaf’s second-quarter results, which included meager sales growth and a sizable margin contraction. Thus, we have reduced our fair value estimates to $17 and CAD 23 per share, down from $20 and CAD 27, respectively. Even so, shares are very undervalued even after considering our Very High Uncertainty Rating for Curaleaf. We think the market remains overly focused on the lack of progress concerning the potential easing of federal prohibition and mistake slower-than-expected growth as signs that the overall market potential has changed. In short, after the massive expectations priced in a few years ago, we now think investors have swung too far the other way. But, like growing a plant from seed to harvest, an investment in cannabis might require some patience.