Trulieve Cannabis is an industry leader, says Beacon Securities

It’s full steam ahead for Florida-based cannabis operation Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL) after its fourth quarter results came in strong, says Beacon Securities analyst Russell Stanley.

In an update to clients Wednesday, Stanley reiterated his “Buy” rating and C$36.00 target price, saying Trulieve has one of the best balance sheets in the industry.

The largest licensed medical cannabis company in Florida, Trulieve, which also has operations in California, Massachusetts and Connecticut, announced its fourth quarter and full year 2019 financials on Wednesday.

In the fourth quarter, TRUL posted $79.7 million in revenue, a 13 per cent increased sequentially and a 122 per cent jump from a year earlier.

Adjusted EBITDA for the quarter went from $36.9 million in the third quarter to $45.0 million.

In her commentary, CEO Kim Rivers said despite the current COVID-19 crisis and uncertainty in the global economy, demand in TRUL’s target markets has been strong.

“Our fourth quarter results reflect our strong brand and customer loyalty, which were key factors in our success for the year. We continued to grow our footprint in Florida and made significant strides building out the infrastructure needed to maximize efficiencies and achieve economies of scale,” Rivers said. “Our solid foundation and cash position enable us to monitor opportunities that meet our disciplined criteria and we remain optimistic about expansion in 2020.”

On the quarter, Stanley said TRUL’s $80 million in revenue and $45 million in EBITDA (a 56 per cent margin) beat his forecast of $78 million and $30 million. The analyst noted that Trulieve delivered positive cash from operations (net of working capital) of over $7 million, which he said is likely to be rare among cannabis companies for the fourth quarter.

Trulieve ended the quarter and year with cash and equivalents of $92 million and debt-plus-leases of $204 million ($130 of which does not mature until 2024), which sets up TRUL well for its organic buildout and potential M&A opportunities, according to Stanley.

“It is important to remember that Florida is a vertically integrated market, so the gating factor to opening additional dispensaries is the ability to self-supply with in-house produced inventory. Many of TRUL’s peers lack the access to capital required to build the cultivation/manufacturing capacity to support meaningful growth of their dispensary footprints,” Stanley wrote.

The analyst noted that TRUL finished 2019 with about 544,000 sq ft of indoor cultivation, and 1.1 million sq ft of greenhouse cultivation, for an aggregate footprint of almost 1.7 million sq ft, while the company’s indoor footprint has expanded to over 616,000 sq ft, taking the aggregate footprint to approximately 1.8 million sq ft, capable of producing approximately 66,056 kg annually.

“The recent spike observed in in Florida’s cannabis sales (see our March 23rd Sunshine State Update) highlights the need for healthy inventory levels in order to satisfy demand,” he wrote.

As for valuation, the analyst estimated that TRUL is now trading at about an eight per cent premium to its US cannabis peers and a 37-per-cent discount to the sector at large, but Stanley says the premium is justified due to TRUL’s dominant position in Florida, “one of the largest and fastest growing cannabis markets,” the analyst added.

“TRUL’s technical picture looks very strong, with the stock having recently broken an important resistance level supported by increasing momentum,” Stanley concluded.

The analyst’s C$36.00 target at press time represented a projected return of 160 per cent.