Curaleaf’s Michigan Problem
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Friends,
Curaleaf lost a trial in a federal court in Michigan earlier this year and owes the plaintiff, Hello Farms, $37.3 million:
Curaleaf did disclose this in their quarterly filings last month:
The annual filing for 2023 indicated that the company had exited operations in Michigan in Q3 and was looking to sell the assets. The 2024 annual filing disclosed sales of some assets and that the company was under investigation by the state for taxes in 2020 and 2021, an examination that began in late 2024. It also included the disclosure that is above.
In March, the company filed an appeal:
Here are the table of contents:
Huh? While it is unfortunate that cannabis is indeed federally illegal, can a company in the industry use that as a reason to invalidate contracts that it signs? The contract between subidisary GR Vending and Hello Farms required that GR Vending buy cannabis from Hello Farms. GR Vending is Grassroots, an MSO that Curaleaf acquired in 2020. The acquisition was announced in 2019 and expanded the company into Michigan and several other states.
At the same time as Curaleaf fights paying the plaintiff a judgment, it is also not paying 280E taxes. In August of 2024, it said in its financial filings:
As of June 30, 2024, the Company has adopted a new federal and state income tax position, asserting that the restrictions of Section 280E of the Internal Revenue Code (“Section 280E”) do not apply to the Company’s cannabis operations. In addition, the Company intends to file amended federal and state income tax returns with refund claims for several of the Company’s business entities for the year 2022. The decision to adopt this position is supported by legal interpretations that challenge the Company’s tax liability as determined pursuant to Section 280E.
The balance sheet over the year has changed dramatically, with the most recent Q2 balance sheet showing income tax payable a year ago of $6.2 million, down from the $198.1 million payable on 12/31/23. It has increased as of 6/30/25 to $14.1 million, which is still way below where it was before they made the change. In June 2024, the uncertain tax position expanded sharply to $339.8 million from $79.1 million six months earlier. It is now $476.9 million. In the first half of 2025, the company paid $20.9 million for taxes.
Not honoring a contract is a big problem, and losing in court makes it a bigger problem. To claim in its appeal that the federal illegality of cannabis makes the contract non-binding is ludicrous, especially as it stops paying the 280E taxes. If 280E taxation ends, the company may be able to afford to pay the judgement to Hello Farms.
If 280E taxation remains, Curaleaf must deal with its terrible balance sheet. At the end of Q2, it reported total assets of $2.92 billion, which was down 1% from year-end. Total liabilities were $1.98 billion, up 1% from year-end. The total equity, then, was $871.3 million, but this included intangible assets of $1.06 billion and goodwill of $636 million. Tangible equity was -$824 million. The company’s debt totaled $561 million, with the bulk due in 2026. On the conference call, CEO Boris Jordan suggested that the debt would be refinanced by year-end.
Curaleaf has declined by 22% since Jordan, the founder and the Executive Chairman since 2015, became CEO in August 2024. The stock, though, is up 59.6% year-to-date and up 195.3% in Q3. MSOS has made it the largest position, increasing its control of shares in it by more than 46% in 2025 so far. Analysts project 2025 adjusted EBITDA of $268.2 million, a decline of 11% from 2024. CURLF trades at an enterprise value to projected adjusted EBITDA in 2025 of 9.1X, which is quite high relative to peers. The company has a worse balance sheet, has been experiencing declining adjusted EBITDA and is expensive to peers in my view.
The current valuation of Curaleaf relative to peers is perhaps enough to turn investors away from it, but its unwillingness to pay a judgment to another cannabis company, arguing that cannabis is federally illegal making the contract non-binding, is alarming.
Sincerely,
Alan
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is what we published this past week:
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