Trulieve Cannabis has a 127 per cent upside, says Beacon Securities

A recent pullback in share price has created a silver platter buying opportunity for Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL), says Beacon Securities analyst Russell Stanley. In an update to clients on Tuesday, Stanley reviewed the latest news on the Florida-based cannabis company and reiterated his “Buy” rating and C$55.00 share price, which at press time represented a projected 12-month return of 127 per cent.

Vertically-integrated cannabis company Trulieve on Tuesday announced the opening of a second medical cannabis dispensary in Fort Myers, an almost 5,000 sq ft retail location to support patients across Southwest Florida and one that marks the company’s 61st dispensary nationwide and 59th in the state of Florida.

Management said the new store helps to expand Trulieve’s access to patients’ treatment options. “Access plays a huge role at Trulieve,” said CEO Kim Rivers in a press release.

“Whether that’s expanding our catalog of products to guarantee every patient has options and products that work for them, or opening new stores. We’re driven by ensuring patients have direct access to the medications they’ve come to rely on.”

In his report, Stanley noted that the new store represents Trulieve’s 17th new location added in 2020 including nine added in the third quarter alone. The analyst said TRUL is on track to exit the year by meeting its target of over 68 dispensaries across the country.

Stanley, who just on Monday raised his target on Trulieve from C$51.00 to C$55.00 per share, argued that what sets Trulieve apart from its competitors in the Florida landscape is not just its dominance in both flower sales, where it currently has 51 per cent of the market, and oil-based sales, where it has a 52 per cent share, but also in the mileage the company gets out of each store.

“On average, TRUL dispensaries sell 4.0x the oil-based products and 3.9x the flower versus the statewide average, excluding TRUL from that average. This dominance has translated into industry leading financial performance, as reflected by the company’s 50 per cent-plus EBITDA margins and strong cash flow performance (a 13 per cent operating cash flow margin in Q2, along with a 44 per cent cash from operations margin),” Stanley wrote.

The analyst estimates that TRUL is trading at about 10x his fiscal 2020 EBITDA forecast, which represents a 75-per-cent discount to the 40x average among its US operating peers, while he says the stock is now trading at 7x his fiscal 2021 EBITDA forecast, putting it at a 39-per-cent discount to the 11x average among its US peers.

Stanley is calling for Trulieve to generate fiscal 2020 revenue and adjusted EBITDA of $491 million and $239 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $762 million and $357 million, respectively. (All figures in US dollars except where noted otherwise.)

Looking ahead, Stanley sees potential catalysts for the stock in additional buildout updates and/or product launches, the company’s third quarter results due in November and closing on acquisitions in Pennsylvania.