Trulieve Cannabis has a 71 per cent upside, Beacon Securities says

Florida-based cannabis company Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart CSE:TRUL) is getting more room to run, says analyst Russell Stanley of Beacon Securities, who claims that TRUL’s recent win in Florida’s courts are a positive for the company.

On Monday, it was announced that TRUL had won its suit challenging the cap on the number of dispensaries permitted per licensee in Florida’s cannabis system (currently set at 30 stores), with Judge Karen Gievers of Florida’s 2nd Judicial Court ruling that the limit doesn’t support the constitutional goals set out by Amendment 2 in 2016 allowing for medical use.

“Trulieve was originally designated as the licensee for the Northwest region of Florida, which is the most rural region in the state. As a result, during the original application process, a cornerstone of our application was patient access and being able to dispense to patients in less populated areas. The court has sided with the argument that access to medicine is critical; Trulieve stands ready to fulfill our commitment to open dispensaries in these areas,” says Trulieve CEO Kim Rivers in a statement.

Stanley says the ruling will benefit Trulieve.

“While there are details yet to be determined (e.g., will the Department of Health appeal the ruling?) and we are leaving our estimates unchanged at this time, we view the ruling positively for TRUL as it raises the likelihood that the company will be legally allowed to expand on its commanding lead in Florida’s medical market,” says Stanley in a client update on Monday.

Stanley notes that TRUL leads the market in Florida with 24 of 93 operating dispensaries and, based on management reports, over 60 per cent of sales volumes. In other Florida news, Stanley points to new Governor Ron DeSantis who has stated his preference for free market principles, indicating that the state could drop its appeals of 2018 rulings that struck down the limit on the number of licensees. As well, the Florida Legislature is expected to consider amendments (to be delivered by March 15) allowing smokable medical marijuana and that new Agriculture Commissioner Nikki Fried has stated that publishing regulations required to allow edible cannabis products is a priority for her office. Stanley takes these developments on a net basis as a positive for TRUL as some would expand the addressable market while other might allow more entrants into the market.

Stanley estimates 2019 Adjusted EBITDA of $90.7 million for TRUL on revenue of $208.7 million and 2020 Adjusted EBITDA of $124.3 million on a top line of $281.3 million. (All figures in US dollars unless noted otherwise.)

The analyst is maintaining his “Buy” rating and C$28.00 target price, which represents a projected return of 71 per cent at the time of publication.