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March 21, 2019, 2:43 p.m. EDT

Curaleaf shines in falling cannabis sector on news of surprising CVS deal

Curaleaf says CVS is already selling CBD products in 8 states, including several that don’t have a legal program

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By Ciara Linnane, MarketWatch , Max A. Cherney

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Cannabis stocks were mostly lower Thursday, with Curaleaf Holdings Inc. a standout after announcing a partnership with drugstore chain CVS Health Corp. on a line of CBD products.

Curaleaf shares /zigman2/quotes/205334348/composite CURLF -0.53%  rose 3.3%, after the company said CVS /zigman2/quotes/209664499/composite CVS +0.05%  is already selling products including creams, sprays, roll-ons, lotions and salves in eight states.

But CBD, the non-psychoactive ingredient in the cannabis plant, is not actually legal yet. While hemp was fully legalized in the 2018 Farm Bill passed in December, CBD was not included but instead was put under the purview of the U.S. Food and Drug Administration. The FDA has promised to hold talks on CBD legalization in April and is aiming to come up with pathways that would allow companies to add it to food, drinks or health products.

But for now, it is viewed as a medical drug, because it is the key ingredient in GW Pharmaceuticals PLC’s /zigman2/quotes/209686240/composite GWPH +2.37%  Epidiolex, the first cannabis-based drug to win FDA approval as a treatment for severe forms of childhood epilepsy. The FDA cannot allow a drug to be added to products without the clinical tests and trials required of drug developers that can take years to complete. Companies, keen to take advantage of the perceived health benefits of CBD, are hoping the regulator will act sooner, rather than later.

CVS said that it is selling CBD products in Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland and Tennessee. Recreational marijuana is legal in California and Colorado, medical marijuana is legal in Illinois and Maryland, but marijuana has not been made legal for recreational nor medicinal uses in the other states.

Read now: Hemp is now legal in the U.S., so what does that mean for pot companies?

Representatives for the Attorney’s General of Kentucky, Alabama, Indiana and Tennessee were not immediately available for comment.

Korey Bauer, portfolio manager of the Cannabis Growth Fund /zigman2/quotes/208282024/realtime CANNX 0.00% , a mutual fund recently launched by Foothill Capital Management, agreed that CBD is a gray area for now.

“This is why there needs to be legislation, because right now it’s a little messy,” he said. “We need clarity on whether companies can at least add low dosages of CBD to products. Right now, it’s definitely risky for a company like CVS. But as soon as we have legalization, I’m sure all these companies will be participating.”

A research report from consumer data company MRI-Simmons published on Wednesday found that of the 36 million Americans that are cannabis consumers, 10% use CBD products, mostly for medicinal purposes.

For more, see: Cannabis stocks lower after Green Organic Dutchman’s earnings disappoint

Curaleaf, which is backed by Russian billionaires, as MarketWatch sister publication Barron’s has reported , also reported widening net losses, while growing revenue more than 400%. The company reported fourth-quarter net losses of $16.5 million, or 4 cents a share, compared with profits of $624,000, or zero cents a share in the year-ago quarter. Revenue rose to $32 million from $6.3 million in the year-ago period, excluding revenue from managed entities.

In a note to clients Thursday, Seaport Global Securities analyst Brett Hundley wrote that investors are taking a hard look at Curaleaf’s claim it will achieve $400 million in annual revenue this year, based on its plan to have 70 pot shops running by the end of the year.

“Our model remains under review at this time,” Hundley wrote.

Of the guidance, GMP Securities analyst Robert Fagan wrote in a Thursday note to clients that it excludes an acquisition in California and Nevada, “… Should all pending acquisitions from 2018 close as expected, we suspect there could even be some upside to this guidance.”

US : U.S.: OTC
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$10.01 billion
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$97.02 billion
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$ 141.70
+3.28 +2.37%
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Jan. 22, 2021 4:00p
P/E Ratio
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$4.42 billion
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Jan. 22, 2021
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