Trulieve Cannabis is well-positioned in Florida market, says Beacon Securities

Florida-based cannabis company Trulieve Cannabis Corp (Trulieve Cannabis Corp Stock Quote, Chart, News CSE:TRUL) continues to get the thumbs up from Beacon Securities analyst Russell Stanley.

On Friday, the analyst reiterated his “Buy” recommendation and C$36.00 target price for TRUL, saying he market is currently overlooking the company’s cash flow strength.

Trulieve announced its second quarter ended June 30, 2019, results on August 14, coming in with record quarterly revenue of $57.9 million, a 30-per-cent improvement over the previous quarter, and adjusted EBITDA of $31.6 million, up from $19.0 million in Q1. The company saw its patient count in Florida jump 19 per cent over its Q2, which management attributes to the introduction of smokable flower in the state (occurring in March) and bumping up TRUL’s Florida patients to over 181,000 as of June 30. (All figures in US dollars unless noted otherwise.)

“Our strong financial results for the quarter combined with our operational and foundational evolution illustrates that Trulieve is not just a cannabis company, but an organization that possess the key fundamentals expected of leading companies across all industries,” said CEO Kim Rivers.

Trulieve Cannabis Corp tops estimates…

For the quarter, Trulieve beat both Stanley’s and the consensus estimates, with the $57.9 million in revenue topping Stanley’s $51.2 million forecast and the consensus $53.9 million and the $31.6 million in EBITDA besting Stanley’s call for $22.4 million and the Street’s $22.9 million. The 55-per-cent EBITDA margin was solidly above Stanley’s 44 per cent and the consensus 42 per cent.

Stanley sees Trulieve’s positive cash flow as a distinguishing factor in the emerging cannabis sector.

“Trulieve is unique amongst cannabis companies for generating meaningful operating cash flow, even net of working capital investments,” Stanley writes. “In addition to strong revenue/EBITDA performance, the company delivered Q2/19 CFO of $9.3 million, easily beating our forecast of $5.4 million. This is quite a feat, as growing companies often require massive investments in working capital to support that growth, and while TRUL is no exception, its strong revenue/EBITDA performance has translated into real operating cash flow.”

The analyst also points to the benefits of Trulieve’s cultivation capacity, expected by management to reach 1.7 million sq ft for an annualized capacity of 63,189 kg by the end of September, as giving the company a leg up in Florida, where current rules require all cannabis retailers to be vertically integrated.

“Unless you are able to cultivate and manufacture product, there is little point in opening dispensaries. Over the past few days, we have observed both Acreage Holdings and Harvest Health & Recreation announcing delays in their retail build-outs in order to allow more time for their cultivation/manufacturing operations to come on line (or catch up),” he writes.

On the retail front, Trulieve management expects to exit 2019 with 44 dispensaries, while the company aims to have a presence in six states in total by the end of the year.

Following on management’s current guidance which extends through 2020, Stanley has tweaked his forecast, now calling for fiscal 2019 revenue and adjusted EBITDA of $238 million and $105 million, respectively, and for fiscal 2020 revenue and adjusted EBITDA of $390 million and $161 million, respectively. Stanley sees TRUL as now trading at 8x his fiscal 2020 EBITDA estimate versus the 11x average among other US-operating companies. The analyst’s C$36.00 target represents a projected 12-month return of 187 per cent at the time of publication.