Trulieve Cannabis can go higher still, M Partners says

First out of the gate with edible cannabis products in the state of Florida, Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL) is likely to capture a market leadership position in edibles, just like it has done with dried flower.

So says analyst Paul Piotrowski of M Partners, who delivered an update to clients on Trulieve on Thursday.

Trulieve’s share price has risen sharply over the past month but Piotrowski said there’s more upside to come from the name.

Tallahassee, Florida-headquartered Trulieve is a vertically integrated multi-state operator with operations currently in four states: Florida, California, Massachusetts and Connecticut.

It’s been less than a week since the Florida Department of Health published its final guidelines for the commercial production and sale of edibles on August 27, and already Trulieve has started selling edibles to its medical cannabis customers across the state. The company announced on Wednesday that it had received approval for its first line of edible products including TreGels, TruNanoGels and TruChocolates. The company’s additional products in the cookie and brownie subcategory are pending Department of Health
approval.

CEO Kim Rivers called it a monumental day for Trulieve where patients have expressed strong demand for edible medical cannabis products.

“We have patients across all demographics with an average age in the early 50s; many of these patients have requested edibles as they have less stigma associated with them, are often easier to ingest, and is a medication option that tastes good, too. Today we are able to offer edibles as yet another alternative for Florida's medical cannabis patients, and we look forward to the excitement to come as we stock our stores,” Rivers said in a press release.

In his commentary, Piotrowski said TRUL is one of just four operators in Florida with an approved commercial kitchen, saying that having first mover advantage and scaled operations should allow Trulieve to capture a market leadership position in edibles and would represent a follow-up to its success with dried flower where TRUL has consistently maintained an approximately 50 per cent market share.

“We are impressed by the strong organic growth in FL, which will be further strengthened with edibles, and the opportunities for further expansion in Massachusetts and other states. On a recent call, CEO Kim Rivers reiterated her expectations for sales in Massachusetts by the end of Q1 or Q2 next year,” Piotrowski wrote.

“Additionally, it was recently reported that Trulieve has received approval for the development of a medical cannabis grow facility in Cabell County, West Virginia, demonstrating TRUL’s ability to grow organically in new markets. West Virginia is a logical target for TRUL given its regional connectivity (fitting the hub model strategy) and limited number of licenses,” he said.

The analyst had not previously included edibles (expected to lift THC sales by about ten per cent) into his projections but has done so now, increasing his second half 2020 and full-year 2021 projections.

Piotrowski is now calling for fiscal 2020 revenue and adjusted EBITDA of $489.0 million and $226.9 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $668.4 million and $272.1 million, respectively. (All figures in US dollars except where noted otherwise.)

With his update, Piotrowski has reasserted his “Buy” rating and lifted his target price from C$35.00 to C$38.00, reflecting at press time a projected return of 42 per cent.

“We expect continued performance in TRUL shares as further product launches in Florida, build-outs in new states and strong weekly DOH numbers are announced.

Additionally, we expect increased attention on federal regulatory changes, namely on the MORE Act (to be considered by the U.S. House of Representatives on September 21), ahead of the November 3rd election,” Piotrowski wrote.