Trulieve Cannabis has a commanding lead in Florida, Beacon Securities says

A just-announced settlement with the Florida Department of Health effectively loosens the reins on Trulieve Cannabis Corp (Trulieve Cannabis Corp Stock Quote, Chart CSE:TRUL), says analyst Russell Stanley of Beacon Securities. On Monday, Stanley reiterated his “Buy” recommendation and C$28.00 target for TRUL.

US cannabis company Trulieve on Monday reported that it and the Florida Department of Health had reached a mutual settlement regarding the statewide cap on the number of dispensaries which a medical marijuana company is allowed to operate in the state. The cap, which is currently set at 35 and tied to the number of active patients in the state, was deemed unconstitutional in February 2019 and hence will no longer be in effect as of April 2020.

The new settlement states that the 14 dispensaries which Trulieve had opened prior to the cap being instated are not to be included in the company’s tally of stores under the cap structure, meaning that Trulieve’s cap is effectively 14 stores above the floating cap, meaning 49 stores presently.

Stanley views the development as a positive, saying that it allows Trulieve to accelerate its dispensary roll-out and build on its “commanding market share lead” in Florida, the US’s third-largest state.

Stanley believes that the Florida market is likely to double, now that smokable cannabis products have been given the green light.

“The state recently legalized the sale of smokable cannabis products. In markets that allow these products, they still represent 40-50 per cent of sales, so we believe this should roughly double the addressable market in Florida,” writes Stanley in a client update. “TRUL is one of just six companies currently licensed to sell smokable products.”

The analyst says that TRUL’s valuation is looking increasingly compelling, representing a 40 per cent discount to the 21x average for its broad peer group and a 64 per cent discount to the 36x average for cannabis companies with over C$1 billion in market ecap.

Ahead of Trulieve’s fourth quarter fiscal 2018 financials due later this month, Stanley is predicting revenue of $31 million and Adj. EBITDA of $14 million, representing an enviable EBITDA margin of 44 per cent, says the analyst. (All figures in US dollars unless noted otherwise.)

“We stress that TRUL is already generating margins that other cannabis companies aspire to deliver in 2020+, reinforcing our view that TRUL represents a compelling investment opportunity at current levels,” he states.

Stanley’s C$28.00 target represents a projected return of 56 per cent at the time of publication.