Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart CSE:TRUL) is strengthening its already dominant position in the Florida cannabis market, says GMP Securities analyst Robert Fagan, who in a flash update to clients on Thursday reiterated his “Buy” rating and C$30.00 target.
Trulieve on Thursday announced it has acquired 84.97 acres of land in Jefferson County, Florida, on which it will be erecting a 750,000 sq. ft. indoor grow facility, a move that management deems necessary to meet its growing supply requirements.
“Trulieve’s need for additional cultivation is being met with this new facility. The new site will supply us with additional product allowing us to meet the growing demands of Florida’s patients at a relatively low cost.” said Kim Rivers, CEO of Trulieve, in a press release.
The construction is expected to occur in phases and to be guided by overall market demand, says Fagan, with ground-breaking expected to occur in early 2020. The analyst sees construction costs of between $100 and $150 million, which means that with the company’s current cash balance of $20 million, there will be a funding gap. At the same time, Fagan notes both the phased-based construction and says that part of the construction costs could be financed from internal cash flow, of which TRUL generated about $35 million over the past 12 months. (All figures in US dollars unless indicated otherwise.)
“With the rapid growth in the FL market, we believe TRUL is adding this capacity to provide optimal flexibility to address a range of possible market developments such as: (1) introduction of edibles and hydrocarbon-based products, (2) the opening of a wholesale market, and (3) support supply for brand partners, and 4) position for a potential Rec market opening,” says Fagan.
“With TRUL needing additional cultivation in FL beyond its current large footprint, this suggests in our view a strong conviction by management in the growth outlook for both the company and the FL market, and their ability to preserve a strong market share position. We note the new expansion will be indoor based, a growing method which best lends itself to smokable flower production, suggesting TRUL intends to devote significant resources to establish a dominant position in this high-growth product category,” he says.
Fagan’s C$30.00 target represents a projected 12-month return of 78.6 per cent at the time of publication.