In its third quarter earnings call on Wednesday, management for Molson Coors Brewing Company spoke…
Florida-based cannabis company Trulieve, which began trading on the CSE last September, owns 24 of Florida’s 90 dispensaries, with management stating that it currently has an approximate market share of 60 to 70 per cent. The company is also expanding into California and Massachusetts via acquisitions
Stanley estimates that cannabis companies with an operational focus on the US currently trade at an average multiple discount of 42 per cent relative to their Canada-focused peers, a difference which he attributes to concerns (outdated, in his estimation) connected to cannabis’ federal status in the US. Stanley believes that US regulatory environment should continue to improve, making US companies an attractive option.
“Relative to the vast majority of Canadian operators, we believe US operating companies generally offer investors a much deeper addressable market, more established business models, broader product suites and greater immediate private sector participation throughout the value chain, particularly in distribution and retail,” says Stanley.
Stanley also praises Trulieve’s 44 per cent EBITDA margins, coming from its third quarter 2018 financials, which the analyst calls “otherwise unheard of.”
“We value TRUL using a 20x EV/2020E EBITDA multiple applied to our forecast of $124 million,” he says. “This is in line with the broad peer group average, which we view as conservative considering the company’s dominant position in a major market, and industry leading 44 per cent EBITDA margins. This multiple also represents a 50 per cent discount to the 40x average for the closest peers (companies with C$1-billion-plus market capitalizations), reflecting residual regulatory uncertainty and a modest float.”
The analyst sees a number of upcoming catalysts for TRUL, including: further M&A activity, completion of its California acquisition, additional dispensary openings in Florida (a market which Stanley says is “nowhere near saturation yet”) and progress on the buildout of its Massachusetts acquisition. Other regulatory and legislative catalysts exist at the state and federal levels, as well, Stanley says.
The analyst projects that TRUL will generate Adj. EBITDA in 2019 of $90.7 million on revenue of $208.7 million and Adj. EBITDA in 2020 of $124.3 million on a top line of $281.3 million. (All figures in US dollars unless otherwise noted.)
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