Finally, Tax Refunds! These Cannabis Companies Will Get The Most Money Back If Rescheduling Happens

Significant tax benefits are anticipated for the cannabis industry, following President Joe Biden's confirmation of the administration's intent to reschedule cannabis from Schedule I to Schedule III. This move could alleviate the burdens of IRS tax code 280e, which has prevented cannabis companies from deducting normal business expenses. Which cannabis companies will benefit the most?

Leading The Pack In Tax Payments

Rescheduling cannabis will eliminate the burdensome 280E tax code, potentially freeing up over a billion dollars in tax breaks for the industry. Among the companies poised to benefit the most are Curaleaf CURLF and Trulieve TCNNF, given their significant tax contributions.

According to Pablo Zuanic, a senior analyst from Zuanic & Associates, these tax savings could lead to enhanced cash flows, enabling these companies to reinvest in growth and expansion.

Zuanic has consistently highlighted the disparity between current market valuations and the potential upside, particularly if federal legalization occurs. He emphasizes that immediate cash flow improvements could lead to substantial revaluation of these companies. By enabling the deduction of ordinary business expenses, the financial statements of these companies would more accurately reflect their true profitability.

Curaleaf's Financial Landscape

Beacon Securities' Russell Stanley notes that Curaleaf's operating cash flow management, which facilitated a debt repurchase post-quarter, improving its financial stability. The expected rescheduling of cannabis and potential enactment of the SAFER Banking Act would create a financial landscape for Curaleaf, potentially increasing the company's operating cash flow by 92% and free cash flow by 188%.

Wedbush Securities released a report on Curaleaf, raising the stock's 12-month price target to $7.00 from $6.00 and maintaining a buy recommendation. Their report notes Curaleaf's performance in key domestic markets such as Connecticut, Arizona, Maryland, and New York, anticipating revenue to increase to $1.50 billion in 2025 with improvements in profitability.

Trulieve's Growth Potential

Needham's Matt McGinley highlights Trulieve for its operational efficiency, noting that the company achieved the highest gross margin and EBITDA rates observed in over two years. He points to significant potential for growth in revenue stemming from legislative advancements in key markets like Florida and Pennsylvania, which may transition to adult-use cannabis.

Analyst Outlook On Industry Impact

Viridian Capital Advisors also provides an outlook, noting that ten MSOs surpassed EBITDA estimates by $37 million in the first quarter of 2024. This performance indicates that initial projections may have been too conservative. Analysts from Viridian highlight that Curaleaf and Trulieve, among others, are positioned to benefit from the financial changes resulting from the removal of 280E.

“We are long-term bullish. Just on the US market alone, we could justify over $110 billion valuations by around 2030 assuming federal legalization,” Zuanic said. “The tax savings would flow straight to the bottom line. If we take 10x on those savings, the upside for most stocks would be significant; in most cases, the value creation would be greater than the respective stocks’ market cap."

To learn more about the cannabis business and how to invest in the sector, don't miss the opportunity to join us at the 19th Benzinga Cannabis Capital Conference in Chicago this October 8-9. Engage with top executives, investors, policymakers, and advocates to explore the industry's future. Secure your tickets now before prices increase by following this link.

Deep Dive: Key Data On Curaleaf And Trulieve

Curaleaf Holdings, Inc.

The latest earnings reports and data from Benzinga Pro reveal the following key metrics for Curaleaf Holdings, Inc.:

• Market capitalization: $4.161 billion
• Q1 2024 revenue: $339 million
• Adjusted gross margin: 48%
• Net loss: $48.3 million
• Adjusted EBITDA: $77 million
• Total assets: $3.083 billion
• Total liabilities: $1.948 billion
• Long-term debt: $475.627 million
• Current ratio: 0.719
• Free cash flow for the quarter: $25.675 million
• Revenue over the trailing twelve months (TTM): $1.353 billion
• Gross profit margin: 47.47%

Trulieve Cannabis Corp.

The latest earnings reports and data from Benzinga Pro reveal the following key metrics for Trulieve Cannabis Corp.:

• Market capitalization: $2.232 billion
• Q1 2024 revenue: $298 million
• Gross profit margin: 58.4%
• Net loss: $23 million
• Adjusted EBITDA: $106 million
• Total assets: $2.819 billion
• Total liabilities: $1.428 billion
• Long-term debt: $478.614 million
• Current ratio: 4.994
• Free cash flow for the quarter: $118.652 million
• Revenue over the trailing twelve months (TTM): $1.142 billion

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