Among multi-state operator (MSO) marijuana stocks, Green Thumb Industries (GTBIF +1.98%) and Curaleaf Holdings (CURLF +3.85%) are top-shelf cannabis companies, both in terms of scale and long-term prospects.
Both also share many of the same risks, which is not surprising given that they operate in an industry that’s not fully legalized at the federal level in the U.S. yet. That said, these stocks aren’t interchangeable. Using traditional fundamental analysis, Green Thumb appears to be the stronger choice among the two.
However, given what drives price action, especially among speculative growth stocks, Curaleaf Holdings appears better positioned to take off from here. That said, it may all depend on both your investing approach and time horizon.
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Green Thumb and Curaleaf share many similarities
Green Thumb and Curaleaf rank among the largest MSOs in the United States. Curaleaf is the largest MSO, with trailing 12-month (TTM) sales of around $1.3 billion. Green Thumb, however, isn’t that far behind, with TTM sales totaling $1.2 billion.
Today’s Change
(1.98%) $0.16
Current Price
$8.23
Key Data Points
Market Cap
$1.8B
Day’s Range
$7.93 – $8.27
52wk Range
$4.80 – $10.43
Volume
315K
Avg Vol
609.5K
Gross Margin
45.02%
As MSOs, both companies own cannabis manufacturing, distribution, and retailing businesses licensed at the U.S. state level. The MSO model has served as a useful workaround for discrepancies in U.S. federal and state marijuana laws. By bulking up, whether organically or via acquisitions, MSOs have been able to benefit from economies of scale.
Today’s Change
(3.85%) $0.14
Current Price
$3.64
Key Data Points
Market Cap
$2.7B
Day’s Range
$3.31 – $3.71
52wk Range
$0.72 – $5.05
Volume
987.6K
Avg Vol
1.3M
Gross Margin
38.04%
Even so, as regulatory uncertainty continues to cloud the U.S. cannabis space, both companies face various challenges specific to this industry. Taxation is a key example. According to Section 280E of the Internal Revenue Code, companies involved in the sale of Schedule I and Schedule II controlled substances can’t take regular business deductions.
Both Green Thumb and Curaleaf maintain that they are not subject to Section 280E. However, the Internal Revenue Service has yet to make a final decision on this. The IRS is likely awaiting further regulatory clarity and could rule in the MSO’s favor, but there’s always the risk that the IRS will reject this position. This could leave both companies exposed to significant tax liabilities.
How these two MSO stocks differ
Green Thumb and Curaleaf may have numerous similarities, but these two MSOs have significant differences as well. One key difference is that while Curaleaf remains unprofitable on a GAAP basis, Green Thumb has reported positive earnings per share (EPS) during each of the past five years. Not only that, Green Leaf trades at a far lower EV/EBITDA ratio, around 3.5 times, than Curaleaf, which trades for an EV/EBITDA ratio of around 15.5 times.
Yet while Green Thumb appears more attractive to value investors, remember that its future completely hinges on further reforms to U.S. federal law. On the other hand, Curaleaf is hedging its bets, pursuing opportunities in Europe’s licensed cannabis market. Moreover, beyond its international catalyst, Curaleaf has another catalyst on tap: plans to move its primary stock market listing from the over-the-counter (OTC) market to a major exchange.
Yes, this uplisting plan is pending regulatory approval. Also, as a favorable interpretation of recent plans to reschedule medical marijuana could pave the way for a Green Thumb uplisting, achieving this would arguably have a greater and more immediate impact on Curaleaf’s stock price performance.
In short, if you prefer the margin of safety provided by a low valuation, Green Thumb may be the better choice among MSO stocks. However, if you believe the headlines will more greatly influence near and longer-term price action, there is also merit in entering a position in Curaleaf. Other investors who want exposure to this trend but want to mitigate company-specific risk may want to opt for marijuana ETFs instead.
