This realignment was the most significant shift in U.S. cannabis policy in more than fifty years. The move allows medical cannabis companies to deduct standard business expenses under IRS rules for the first time and improves access to banking and institutional capital.
The Centers for Medicare and Medicaid Services will launch a pilot program in April that will allow certain Medicare seniors to receive free, doctor-recommended CBD (cannabidiol) products that meet local safety standards. However, Trump emphasized that the order does not legalize recreational marijuana use.
The potential access to traditional capital and several other markets makes cannabis stocks one of the top investment options today. Investing in high-quality cannabis stocks offers TFSA (Tax-Free Savings Account) investors the opportunity to generate outsized profits for years to come.
One of those top cannabis stocks is Curaleaf (TSX:CURA), which is valued at a market cap of $3.2 billion. Curaleaf stock is up more than 80% by 2025. Despite the recent rebound, it is 82% below its all-time high.
The bull case for investing in this TSX cannabis stock
In the third quarter of 2024, Curaleaf reported revenue of $320 million, down 3% year over year. The cannabis producer attributed the sales decline to double-digit price compression across all markets, offsetting volume gains.
Curaleaf announced a restructuring initiative 12 months ago that would focus on genetic improvement, supply chain optimization and retail realignment.
Curaleaf reported gross margins of 50%, up 115 basis points year over year despite pricing headwinds. The margin improvement was linked to improvements in cultivation efficiency, which increased average flower vigor above 30% for the first time in company history.
Management has also praised the Dark Heart genetics program and disciplined breeding techniques for delivering improvements within the breeding network.
The marijuana giant reported $53 million in operating cash and $37 million in free cash flow in the third quarter, meaning it spent $16 million on capital expenditures. It reduced balance sheet debt by $28 million and ended the third quarter with $107 million in cash.
International sales rose 56% year over year, driven by Curaleaf’s gains in Britain and Germany. This segment will be a key driver of future growth, even though it has reduced EBITDA (earnings before interest, taxes, depreciation and amortization) by 120 basis points.
Management resolved short-term German supply constraints by having regulators lift limits on import permits, creating ample headroom for the coming quarters.
Curaleaf retired $30 million in acquisition debt after quarter end, completing its Tryke obligation and paying approximately $70 million over two years. It has secured a US$100 million revolving credit facility with Needham Bank at an interest rate of 8%, giving the company the flexibility to refinance higher cost debt.
Is TSX stock currently undervalued?
Analysts who follow Curaleaf stock predict that revenue will increase from $1.3 billion in 2025 to $1.7 billion in 2029. During this period, free cash flow is expected to improve from $82.4 million to $540 million.
If the TSX cannabis stock is priced at ten times FCF, which is relatively cheap, it could deliver a return of over 120% within the next three years.
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