Will $286M Tryke Deal Improve Curaleaf's Operating Margin? Analyst's Thoughts Ahead Earnings

Cannabis giant Curaleaf Holdings, Inc. CURLF announced Monday that it has entered into a definitive agreement to acquire Tryke Companies, which is doing business as Reef Dispensaries.

Under the deal, the company, based in  Wakefield, Mass., agreed to purchase the vertically integrated, multi-state cannabis operator for $286 million in cash and stock.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic reiterated an ‘Overweight’ rating and price target of $20 on Curalef’s stock.

The Thesis

Curaleaf is investing $286 million in "one of the most attractive assets in Nevada and Arizona” with premium brand Tryke, which can possibly scale across the nation, explained the analyst in his Monday analyst note.

The Reef dispensary, close to the Las Vegas strip, is second only to Planet 13 PLNHF in terms of traffic, Zuanic pointed out, adding that he is impressed with the structure of the deal – only $40 million in cash at closing - which is projected in the second half of 2022 - with remaining cash/share portions in one to three years upon closing.

“As per our math, Tryke shareholders will eventually own 2.3% of the Curaleaf share count, and Tryke would be 9% of the Curaleaf new proforma sales taking 2021 numbers. If we compare with the recent TerrAscend TRSSF /Gage Growth GAEGF all-stock deal, TerrAscend is paying 4.2x sales and Gage shareholders will own 19.8% of the new company.“

While noting there are many positive takeaways from the Curaleaf-Tryke deal, Zuanic highlighted the fact that Tryke’s revenues “only” improved around 60% from $70 million in 2018 to $110 million this year, which is behind the Nevada/Arizona overall market growth.

The analyst added that possible regulatory reforms can benefit the biggest U.S. operators the most.

In “proforma terms, Tryke would add ~9% to our 2021 projected revenue base for Curaleaf of $1.24 billion, and it would be margin accretive,” Zuanic concluded.

The Price Action

Curaleaf’s shares were trading 7.46% higher at $10.81 per share at the time of writing Monday morning.

Photo: Courtesy of Tim Foster  via Unsplash