Curaleaf’s Debt Is Now a Short-Term Obligation
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Friends,
Four weeks ago, I warned here about Curaleaf being overvalued relative to its peers. The stock had closed at $2.44 and promptly more than doubled two weeks later to a high of $5.05 during trading on 12/18 after a $4.70 close a day earlier. The December 12th move by President Trump of issuing an Executive Order about cannabis rescheduling prompted this wild surge in the price.
While the conclusion of the 12/4 newsletter was very wrong at first, it has played out as I expected in less than a month. Curaleaf has gained just 3.3%, while the four other large MSOs have gained 25.2% to 50.8%. MSOS, which has a lot of Curaleaf in it, has rallied 27.9%.
Of course, Curaleaf’s stock had a fantastic year, rising 61.5% in 2025. Since 11/05/24 (the elections), it has dropped 19.2%, which is the smallest decline of the five largest MSOs. Looking at the action since 4/30/24, the peak of the cannabis sector and the day that the DEA said that it was moving forward on the rescheduling process, it has dropped the second-most of the largest five MSOs. Compared to its two peers that join CURLF in representing 67.8% of MSOS currently, it has performed the worst and has done a bit worse than the MSOS decline of 58.1%:
Curaleaf has a worse balance sheet than its peers, and the company failed to get the debt due in 2026 refinanced. At the end of Q3, Curaleaf had $456.8 million due 12/15/26, and it had suggested in August on the Q2 conference call that it would get this refinanced by the end of the year:
I’d like to provide an update on our upcoming debt refinancing. Over the past several months, we’ve engaged with a broad range of investors, including public and private credit funds as well as regional banks. The initial response has been highly encouraging with strong indicative interest and constructive dialogue.
We remain focused on securing the most favorable outcome for Curaleaf, aligned with our long-term capital strategy. We are on track to complete the refinancing by year-end and are confident it will enhance our financial flexibility and support our growth priorities.
Curaleaf did announce a new debt deal in October, upsizing by $60 million a revolving credit facility with Needham Bank to $100 million. Its Q3 SEDAR filings showed cash at $107.5 million and total borrowings at $551 million. Not included in the borrowings was uncertain tax position of $510.7 million. Taking all of its assets and liabilities, Curaleaf reported equity of $814.8 million, but it reported intangible assets of $1.03 billion and goodwill of $634.0 million. Netting these against the reported equity, Curaleaf had tangible equity of -$853.6 million. It’s not clear why Curaleaf didn’t announce an extension of this large amount of debt due in 2026, but perhaps lenders were concerned with the balance sheet. Of course, perhaps it was refinanced but not yet announced. Also, maybe the company is waiting, as rescheduling, if it goes through, would wipe out 280E taxation. Investors, though, should be prepared for the current ratio to plunge. At the end of Q3, Curaleaf had current assets that were 1.5X current liabilities, but the ratio will be substantially below 1X on the Q4 balance sheet. This could alarm investors.
As I said, perhaps they have dealt with this debt issue and just not announced it yet, or perhaps they will do so soon. If rescheduling does not go through, this could become a big challenge to Curaleaf. Its peers have done a decent job of extending their debt maturities. If Curaleaf is unable to find a lender, it could sell stock to raise funds. The company reported 772.2 million shares outstanding in early November, and I calculate 803.1 million shares outstanding on a fully-diluted in-the-money basis. If they were to sell 200 million shares at $2.52, this would cover the debt and leave the balance sheet in much better shape. The stock is up a lot from its all-time low set earlier this year at $0.68, and it looks very expensive relative to its peers, trading currently at an enterprise value to projected adjusted EBITDA for 2026 of 8X.
I hope that 280E taxation goes away, and this would be very good for Curaleaf if it does, but investors need to be be aware of the potential risks of the stock. Investors who want to buy an MSO have better options than Curaleaf, which is quite risky.
Happy New Year!
Sincerely,
Alan
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