Trulieve Cannabis has a 70 per cent upside, Beacon Securities says

The cannabis industry in the state of Florida is rapidly evolving, with reports on Tuesday that the state legislature is moving on a bill to repeal a ban on smokable medical marijuana.

That’s good news for cannabis company Trulieve Cannabis, says analyst Russell Stanley of Beacon Securities, who on Wednesday reiterated his “Buy” recommendation and C$28.00 target price for the stock.

In an update to clients, Stanley points out that since smokable products still represent 40 to 50 per cent of sales in states that allow them, the legislative development is good for Trulieve, which is the “clear market leader,” he says, with 24 of the state’s 96 operating dispensaries and over 60 per cent of sales volumes in the state.

As well, Stanley notes Trulieve’s new agreement with Love’s Oven, a Colorado-based manufacturer of cannabis edibles, giving Trulieve exclusive rights to manufacture the latter’s products in Florida, another positive for the company, says Stanley, as it expands its addressable market in Florida.

“Trulieve trades at just 12x our 2020E EBITDA forecast of $124 million (slightly below consensus of $131 million), representing a 45 per cent discount to the 22x average for the broad peer group, and a 69 per cent discount to the 38x average amongst companies with over C$1 billion market capitalization,” says Stanley. “TRUL is unique in the cannabis space for having a dominant position in a major market (more than 60 per cent volume share in the country’s third largest state by population at 21.3 million).”

The analyst expects that Trulieve will generate 2019 Adj. EBITDA of $90.7 million on revenue of $208.7 million and 2020 Adj. EBITDA of $124.5 million on revenue of $281.3 million. (All figures in US dollars unless otherwise noted.)

Stanley’s C$28.00 target represented a projected return of 70 per cent at the time of publication.