AltaCorp Capital launches coverage of Trulieve with a “Buy”

Sheer dominance in Florida’s medical market combined with a growing presence in a handful of other key states makes Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL) a good bet, says AltaCorp Capital analyst Kenric Tyghe, who launched coverage of TRUL on Monday with an “Outperform” rating and one-year target of C$25.00.

Talhassee, Florida-based Trulieve is a vertically-integrated cannabis company with the majority of its business in Florida. The company has branded stores with 48 locations in the Sunshine State and 50 in total, expecting to grow to 68 nationally by the end of 2020.

Along with its Florida business, Trulieve has interests in California, Massachusetts and Connecticut.

The company saw its share price slide for a good chunk of 2019 along with the rest of the cannabis space, but the stock has done well since the wider market pullback in February and March of this year, climbing now over 90 per cent since its mid-March lows.

With 53.3 per cent of the market share in Florida, Trulieve is currently the third-largest cannabis operator in the whole of the United States, based on revenues. The company has proprietary wellness products across of range of media including smokable flower, flower pods, concentrates, topicals, capsules and vapes.

Tyghe pointed out in his coverage initiation that Trulieve is one of the most established and most trusted brands in Florida’s market, having been in action with one of the first five cannabis licenses issued back in 2015 and having been the first to open a dispensary in 19 of the state’s 29 municipalities. So far in 2020, the company has opened five new stores in Florida.

Tyghe said the expected legalization of edibles in Florida in 2020 would be a positive catalyst for the stock and company.

“The Trulieve brand is synonymous with medical cannabis in Florida, with over 440 SKUs across multiple form factors, available in the Company’s 48 dispensaries,” the analyst said.

“The foundation of Trulieve’s strategy is predicated on developing Trulieve branded products that are not only synonymous with quality and consistency but maintain a consistent look and feel across each dispensary to help improve the patient experience,” Tyghe wrote.

Looking ahead, the analyst thinks TRUL will generate fiscal 2020 revenue and adjusted EBITDA of $399 million and $164 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $518 million and $205 million, respectively. (All figures in US dollars except where noted otherwise.)

“We believe Trulieve’s dominant position in the medical cannabis market in Florida, dovetailing with expected regulatory changes in this market that should support both wholesale sales and recreational-use legalization through 2022, imputes significant value that is not currently reflected in the share price. In addition, small tuck-in acquisitions in California, Connecticut, and Massachusetts have established a beachhead in attractive markets beyond Florida,” Tyghe added.

The analyst estimates Trulieve to be trading at below its peer group average EV/2020 EBITDA multiple of 14.8x, with Tyghe figuring a 10.0x multiple supports his price target of C$25.00. As of publication, the C$25.00 target represented a projected return of 49 per cent.