Is Curaleaf a Good Buy After Its Impressive Q3 Results?

U.S. cannabis stocks often get overlooked in favor of popular Canadian players like Aurora Cannabis and Canopy Growth. But if you look at their revenue growth even in a limited legal market, you will understand why U.S. stocks are actually the better options. While marijuana is still illegal at a federal level in the U.S., more states made cannabis legal in the November 2020 elections, presenting more opportunities for expansion. Currently…

35 states and the District of Colombia allow the medical use of cannabis, while 15 states and D.C. allow recreational use of marijuana.

Massachusetts-based Curaleaf Holdings (OTC:CURLF) had a marvelous 2020. It reported consistent revenue growth and positive EBITDA (which stands for earnings before income, tax, depreciation, and amortization). Its outstanding performance continued into the third quarter of fiscal 2020, which was reported on Nov. 17. Its stock has gained 97% so far this year, while the industry benchmark, the Horizons Marijuana Life Sciences ETF, is down 4% over the same period. Here are three reasons why this pot stock is an excellent buy after its Q3 results.

Revenue growth leads to consistent EBITDA growth

Despite the strong demand for cannabis, Canadian marijuana companies have always struggled to generate the revenue required to be profitable. It is mostly because of the challenging regulatory environment in Canada — this delays the opening of legal stores, pushing consumers toward the black market.

Meanwhile, U.S. cannabis companies saw drastic revenue growth, especially when marijuana sales started soaring during the pandemic. Curaleaf is a vertically integrated cannabis company, which allows it to control its supply chain. It sells its medical and recreational marijuana products in 23 U.S. states. Because it controls all steps of production, Curaleaf could avoid major production disruption and maintain efficiencies amid the pandemic.

In its third quarter ended Sept. 30, Curaleaf saw an eye-catching revenue surge of 195% year over year to $182.4 million. Both its segments, retail and wholesale, brought in higher sales during the quarter. Retail sales jumped 206.5% to $135.3 million in Q3, from $44.2 million in the year-ago period. Meanwhile, wholesale revenue increased from $6.5 million in Q3 2019 to $45 million in Q3 2020.

The excellent top-line increase in the quarter drove adjusted EBITDA to $42 million, up from an EBITDA of $10.4 million in Q3 2019. The company reported positive EBITDA in the first two quarters of fiscal 2020 as well. EBITDA also jumped 51% from…

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