Rapid Reaction: Curaleaf-CVS deal an ‘insitutional stamp of approval’

Massachusetts-based Curaleaf on Wednesday reported that its fourth-quarter sales more than quadrupled compared to the same quarter a year ago and unveiled news that it has inked a deal with the CVS pharmacy chain to begin selling hemp products at 800 stores in 10 states.

Curaleaf Hemp lotions and transdermal patch products will start hitting store shelves this week, executives said.

“All large retailers are figuring out their hemp strategy and will address that in 2019 because there is such a huge product demand,” CEO Joseph Lusardi said on an investor and analyst call to discuss the latest results.

He also noted that the company has no plans to cultivate hemp but is working through supply contracts with growers in key hemp production states such as Kentucky.

Curaleaf, which trades on the Canadian Securities Exchange (CSE) under the ticker symbol CURA, currently operates in 12 states with 42 dispensaries, 12 cultivation sites and 11 processing sites.

Here are the top takeaways Investor Intelligence subscribers should know:

Reaction to the CVS Deal

  • The CVS partnership may not be a “major revenue contributor for the company” immediately – though it could be down the line since it includes only roughly 8% of CVS’ U.S. stores – but it’s a “very positive development,” according to Andrew Kessner, an analyst with New York-based investment advising firm William O’Neil.
  • “The association with a major retail chain – especially a pharmacy chain – provides an institutional stamp of approval and should give the company momentum as it pursues other distribution partnerships,” Kessner told Investor Intelligence.

Earnings Highlights

  • Curaleaf reported revenue of $31.9 million for the fourth quarter of 2018, up from $6.3 million for the same period in 2017. Full-year revenue totaled $77 million, nearly triple that of 2017.
  • Net losses totaled $16.5 million for Q4 and $61.8 million for 2018. The full-year net loss includes a $25.1 million one-time adjustment associated with the company’s reverse takeover that led to its CSE listing last year.
  • Cormark Securities analyst Jesse Pytlak told Investor Intelligence: “The company delivered a solid quarter that was consistent with expectations. Curaleaf is generating strong sales traction across its markets, executing on its build-out plans and demonstrating good cost discipline and prudent capital allocation.”

Momentum in Key States

The company offered a state-by-state update on its progress building out its footprint. Here are two top takeaways:

  • Florida: Curaleaf’s footprint includes 22 dispensaries in Florida, a market that just approved smokable flower. “This could double the medical market in Florida,” Curaleaf CEO Joseph Lusardi said. By the end of the year, the company expects to have 35 dispensaries open.
  • New York: As one of only 10 licensees and with four dispensaries operating in the state, Curaleaf boasts a 15% market share in New York, Lusardi said. As state leaders consider approving recreational marijuana, Curaleaf is well positioned to tap the “full potential of the market,” Lusardi said.