Trulieve Cannabis still has big upside, GMP says

After releasing its fourth quarter financials, GMP Securities analyst Robert Fagan is maintaining his positive stance towards Florida-based cannabis company Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart CSE:TRUL), saying in a research update on Friday that there’s potential upside to management’s guidance.

Tallahassee, Florida-based Trulieve announced its fourth quarter and full year 2018 financials on April 10, reporting quarterly revenue of $35.9 million, up from $28.3 million in its previous Q4, and Adjusted EBITDA of $15.2 million, up from $12.6 million a year prior. (All figures in US dollars unless otherwise noted.)

In a press release, CEO Kim Rivers said that while 2018 was about building a foundation to scale its business, 2019 is about following through. “2019 will be a year of execution for us as we leverage our strong revenue growth and positive adjusted EBITDA. We will focus on innovating and delivering new products for our customers, such as smokable flower, edibles and nano-emulsions. We will cultivate new strategic partnerships, as we have recently demonstrated with Slang and Blue River. Finally, we will execute on our plans for multi-state operational expansion.”

Fagan says the $35.9 million top line was ahead of his $34 million forecast as well as the consensus $32 million, while the $15.2 million in EBITDA also beat his $13.6-million estimate and the $13.8 million consensus.

The analyst says that eight out of the company’s 13 cannabis stores are generating approx. $7 to $9 million in annualized sales, which he calls impressive, at twice the industry average in the US. Fagan points out that TRUL reaffirmed its 2019 guidance, announced in September of last year, which calls for revenues of $214 million and EBITDA of $92 million. But Fagan contends that with the vast majority of the guidance seeming to come from TRUL’s Florida operations, the forecast excludes potential contributions from its smokable flower and edibles market, its network growth beyond 33 stores and any future M&A activity. Thus, he expects a guidance update will come sometime this summer.

“Q4 results show TRUL is still the clear leader in FL which exemplifies its capabilities to effectively compete amid an increasingly competitive market. In addition, TRUL opened the most stores in its history in Q4 while maintaining good cost control, highlighting solid execution. Lastly, TRUL’s 2019 guidance is unchanged from Sept. 2018 levels, suggesting there could be considerable upside,” says Fagan.

Fagan is maintaining his “Buy” rating and C$26.00 target price for TRUL, which translates into a projected return of 39 per cent at the time of publication. The analyst is calling for 2019 revenue and EBITDA of $228.8 million and $105.1 million, respectively, and 2020 revenue and EBITDA of $314.2 million and $145.8 million, respectively.