Better Buy: Trulieve vs. Curaleaf

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Curafeuille Holdings ( CURVE -7.50% ) and Trulieve Cannabis ( TCNNF -5.29% ) have taken two very different approaches to growing their cannabis business. Curaleaf focused on rapid expansion, while Trulieve chose a more stable approach. Their stock prices are also going in opposite directions lately:

CURVE given by Y-Charts

By comparison, the Horizons Marijuana Life Sciences ETFs fell by 35% over the same period.

Both Curaleaf and Trulieve are among the most successful multi-state carriers in the country, but knowing which one to invest in today means taking a closer look at their strategies. Let’s separate these two cannabis stocks and assess which is the best buy in 2020.

Curaleaf’s ongoing acquisitions could propel it to the top of the industry

Curaleaf has been aggressive with acquisitions. He took a page from canopy growthbook not to hesitate to take big steps. In May, Curaleaf announced that it was acquiring cannabis oil producer Cura Partners, owner of the popular Select brand, in an all-stock deal worth $948.8 million at the time. of the ad. However, due to deteriorating market conditions in the cannabis industry, the agreement has since been terminated. adjustedand it’s now worth around $309 million, with the option to increase if certain milestones are met.

Two hands covered in gloves pruning marijuana plants

Image source: Getty Images.

The acquisition will give Curaleaf a significant presence on the West Coast; at the time of the announcement, Select products were sold at over 900 retailers on the West Coast, including California. Currently, Curaleaf operates in 12 states with 50 dispensaries and 14 cultivation sites.

However, the company did not stop there. Curaleaf took another big plunge in July when it announced it would acquire Grassroots in a cash and stock deal worth $875 million. This is a strategic move for Curaleaf, as the deal gives it access to new markets, including Illinois and Oklahoma. This would give Curaleaf a presence in 19 states across the country. Curaleaf says the deal would make it “the world’s largest cannabis company by revenue.”

And that may well be true. In November, Curaleaf released its third quarter 2019 results, which identified pro forma revenue totaling $129 million. The pro forma is essentially a hypothetical scenario, as it includes revenue from closed and pending acquisitions. To compare, canopy growthSales of only totaled C$77 million in its most recent quarter.

Did Trulieve focus too much on Florida?

On December 18, Trulieve opened its 42nd dispensary in Florida as it continues to expand its operations in the state. However, there are over 30 other states that have legalized medical marijuana; it’s hard not to wonder if Trulieve was too passive in her strategy.

The company announced several acquisitions over the past year to expand into new markets, including Connecticut, California and Massachusetts. But a presence in just four states puts Trulieve well behind Curaleaf and other multistate carriers in the country.

However, it’s hard to argue with strong results, which Trulieve has produced in recent quarters. In November, the company released its third quarter results; Trulieve posted a profit of $60 million. The cannabis producer has posted a profit in each of its past four quarters. Even the company’s operating profit is consistently in the black.

And with revenues totaling $209 million over the past 12 months, the company is doing very well in Florida. With a solid business model focused on selling into one of the hottest markets in the country and then slowly expanding outwards, it could be argued that it doesn’t need to grow fast like Curaleaf did it. Many cannabis companies are bleeding money and making mounting losses, and Trulieve is growing at a much more sustainable pace that won’t entail as much expense as if it were expanding rapidly. This has allowed Trulieve to better control its costs, allowing it to post strong margins and profits, which is rare in the industry and is why the stock stands out from its peers.

Why Trulieve is the best stock to buy today

An overly aggressive growth strategy can be a quick way for a business to disperse, rack up costs, and spend money. This is why, despite all the potential and market share opportunities that exist for Curaleaf, there are also very big risks. It may have operations in more states than Trulieve, but since marijuana is still federally illegal, Curaleaf is unable to benefit from synergies between those locations and even transport marijuana products across state borders.

And that’s why a rapid growth strategy may not be worth all the expense and cash burn that comes with it. The simpler the business model, the easier it is to control. Trulieve is profitable, it’s growing, and there’s nothing wrong with the business to suggest it needs to grow. Marijuana legalization may not happen in the United States for years, and expanding too soon may do more harm than good.

There is still plenty of time for Trulieve to expand into other markets. It’s a great marijuana stock to buy in the short and long term.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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