Curaleaf's Strategic Turnaround: Can International Growth Justify a Re-Rating in the Cannabis Sector?

The cannabis industry remains a high-stakes arena, where volatility is the norm and re-ratings are rare. Yet, Curaleaf Holdings (CURLF) has emerged as a standout contender, driven by a strategic pivot to international markets and operational discipline. With a 74% year-over-year surge in international revenue in 2024, the company is testing the boundaries of investor optimism. But does this growth, coupled with operational improvements, warrant a re-rating in a sector still grappling with regulatory uncertainty and profitability challenges?

Operational Improvements: A Foundation for Stability

Curaleaf's 2024 results underscored a shift toward efficiency. The company reported a 48% adjusted gross margin in Q4, a 150-basis-point improvement year-over-year, driven by lower production costs and higher utilization of facilities. For the full year, it generated $70 million in free cash flow, a stark contrast to the $216.2 million net loss from continuing operations. This cash flow resilience, despite a challenging macroeconomic environment, reflects progress in cost management and margin optimization.

The “Return to our ROOTS” initiative, launched by CEO Boris Jordan, has prioritized debt reduction and operational streamlining. Capital expenditures of $93.2 million were directed toward automation and selective retail expansion, particularly in Florida, where the company opened two new dispensaries. These moves aim to balance growth with fiscal prudence, a critical step for a firm still burdened by $580 million in debt as of Q1 2025.

International Expansion: A Game-Changer?

Curaleaf's international segment, now accounting for 7.9% of total revenue, has become a bright spot. The 74% YoY growth in 2024 was fueled by strategic acquisitions, such as Northern Green in Portugal, and the introduction of premium flower brands like 420 in Germany. The company's foray into regulated medical markets—such as Germany's Pillar 1 program—has positioned it as a quality-focused operator, with its 420 brand reportedly holding a 20% market share in the region.

The hemp-derived THC seltzer launch under The Hemp Company further diversifies its revenue streams, tapping into the booming $1.5 billion hemp-derived THC market. Analysts note that this segment, with its lower capital intensity, could offset risks in the traditional cannabis business. Curaleaf's first wholesale shipments to Australia and New Zealand also signal ambitions to scale globally, leveraging its vertically integrated supply chain.

Valuation and Analyst Sentiment: A Tale of Two Narratives

Curaleaf trades at a premium to peers like Aurora Cannabis (ACB) and Canopy Growth (CGC), with a market cap of $855 million despite a $216 million net loss in 2024. This valuation is justified by its international momentum and operational improvements, but skeptics argue the premium is speculative. Analysts highlight the company's $40 million revolving credit facility—a milestone for a cannabis firm—as evidence of improving creditworthiness. However, the path to profitability remains uncertain, with Q1 2025 adjusted EBITDA margins declining to 21% amid continued international investments.

The debate hinges on whether Curaleaf can replicate its U.S. growth in Europe and Asia. With Europe's population twice that of the U.S. and cannabis adoption still in early stages, the potential is vast. But scaling internationally requires navigating regulatory hurdles and competition from local players.

Justifying the Re-Rating: A Risk-Reward Analysis

For Curaleaf to earn a re-rating, it must demonstrate that its international growth is not just a temporary spike but a sustainable driver of value. The company's 74% YoY international revenue growth is impressive, but scaling this to a material portion of total revenue will take time. In 2024, international revenue represented just 7.9% of total sales, compared to 20% for Aurora's Canadian operations.

Investors must weigh the upside of global expansion against the risks of regulatory delays in the U.S. and potential margin compression in saturated markets like Ohio and New York. Mike Tyson's advocacy for federal legalization adds a wildcard element, but policy shifts remain unpredictable.

Investment Implications

Curaleaf is a speculative bet for long-term investors who believe in the cannabis industry's potential and the company's international strategy. Its operational improvements and debt reduction efforts provide a foundation, but the stock remains vulnerable to macroeconomic shocks and regulatory setbacks. For those with a high risk tolerance, Curaleaf's momentum in Europe and Asia could justify a position, particularly as Q2 2025 results (due August 6) provide clarity on the trajectory of its free cash flow and international margins.

In a sector where patience is a virtue, Curaleaf's re-rating will depend on its ability to execute its “Return to our ROOTS” strategy and prove that its international ambitions are more than just a pipedream. For now, the jury is out—but the evidence suggests the company is on the right track.