Key Points
Curaleaf is buying out its minority partner in Europe.
The former strategic investor in Curaleaf’s European subsidiary is remaining invested in Curaleaf itself.
Curaleaf generates substantial free cash flow and is growing nicely.
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Curaleaf Holdings (OTC: CURLF), one of only a handful of publicly traded cannabis stocks that are headquartered in the U.S., jumped 4.8% through 11:30 a.m. ET Tuesday after announcing it has consolidated its stake in its European holding company, Curaleaf International Holdings Limited (CIHL).
Curaleaf now owns 100% of the subsidiary.
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What Curaleaf bought
Since its initial foray into Europe in 2021, Curaleaf advises, an unnamed “single strategic institutional investor” has owned part of the equity in CIHL. Now Curaleaf owns it all, and takes all the risk that the business may perform poorly — and will reap all the rewards if CIHL performs well.
Curaleaf seems to think the latter option is more likely, as does its former institutional investor — which has “elected to receive the purchase entirely in Curaleaf Subordinate Voting Shares.” This means the investor eschewed the safety of getting paid in cash, and instead is keeping its cart firmly hitched to the horse that is the Curaleaf parent company.
Or as Curaleaf put it: “The request of the strategic investor to settle the transaction for Company shares underscores the investor’s long-term support and confidence in the future of Curaleaf.”
Is Curaleaf a buy?
Practically speaking, it’s as if the strategic investor took payment from Curaleaf for its stake in the subsidiary, and then immediately used that payment to buy shares in Curaleaf itself. But is Curaleaf stock really a good buy?
I think it is. Curaleaf is the only marijuana stock I know of that generates positive free cash flow, nearly $63 million over the last year. That gives the stock a price-to-free cash flow ratio of almost exactly 10. So long as Curaleaf can maintain even a low-double-digit growth rate going forward, that should be cheap enough to buy.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
