Trulieve gets big price target raise at ATB Capital

Ahead of third quarter earnings from US cannabis company Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL), ATB Capital Markets analyst Kenric S. Tyghe is saying investors should take notice of Trulieve’s sheer dominance in Florida and growing presence in a number of other states.

In an update to clients on Wednesday, Tyghe reaffirmed his “Outperform” rating while boosting his price target from C$35.00 to C$45.00, which at press time represented a projected one-year return of 30.9 per cent.

Set to deliver third quarter 2020 results on November 17, Tallahassee, Florida-based Trulieve is a US multi-state operator (MSO) active in recreational and medical cannabis channels in both wholesale and retail across the US. The company grows and produces in-house products and distributes to Trulieve-branded stores in Florida, California, Massachusetts, Connecticut and Pennsylvania.

Trulieve’s Florida presence is huge, with 59 dispensaries and 51.6 per cent of the market share despite operating only 21.2 per cent of Florida’s stores, according to Tyghe, who said the overall state numbers were strong for the third quarter 2020. Sales volume statewide grew at a 21.0-per-cent clip year-over-year on a patient count which grew by 56.3 per cent to 424,244.

“With the approval for the immediate sale of edibles on August 26, 2020 and Trulieve being the first among the Florida operators to launch its edibles line on September 2, 2020 at its flagship Tallahassee dispensary, we believe they are well positioned to further expand their share of the Florida market. It’s worth noting that consensus among operators is that edibles have the potential to quickly capture 20.0 per cent-plus of the market, which on projected 2021 sales in the range of $950.0mm to $1.2 billion, could amount to roughly $250.0 million,” Tyghe wrote.

For the Q3, Tyghe is estimating revenue of $134.1 million, which is slightly above the consensus at $131.4 million and would represent year-over-year growth of 89.5 per cent and sequential growth of 11.0 per cent for TRUL. His adjusted EBITDA call is for $60.4 million, in line with consensus at $61.0 million and representing year-over-year growth of 63.5 per cent and a margin of 45.1 per cent. (All figures in US dollars except where noted otherwise.)

“Our estimates largely reflect strong patient count growth and the opening of six additional dispensaries in Florida for 59 in the state exiting the quarter (and 61 in total), dovetailing with the continued evolution of the market driven by the introduction of edibles in quarter which further expands the reach of Florida’s medical use market,” Tyghe wrote.

For the full 2020 year, Tyghe is calling for revenue and adjusted EBITDA of $497 million and $239 million, respectively, and for 2021 revenue and adjusted EBITDA of $752 million and $335 million, respectively.

The analyst explained his new price target by saying, “We believe our price target, and new target multiple and discount rate are well-supported given Trulieve’s continued dominance of Florida’s rapidly evolving medical cannabis market, its growing presence in California, Connecticut and Massachusetts (and shortly Pennsylvania), and the continued revaluation higher of the peer group and decrease in their cost of capital. The price target reflects a new 12.0x (10.0x prior) to our revised 2021e EBITDA of $334.8 million.”

TRUL’s share price finished 2019 up 39.7 per cent while so far in 2020 the stock is up 124 per cent. On the macro setting, Tyghe said the ongoing rerating higher of US cannabis stocks should be reflected in TRUL’s valuation. On Trulieve’s valuation compared to its peers, Tyghe wrote,

“We believe that on the rerating of the peer group, an increase in our target multiple to 12.0x from 10.0x reflect a more appropriate discount versus the other leading players with a broader footprint, who are trading at 16.0x-plus 2021e EBITDA with target prices reflecting a range of multiples of 15.0x – 18.0x. The reduction in our assumed cost of capital from 14.3% to 12.6%, reflects both recent election results which increase the probability that the SAFE Banking Act (in some form) is passed in 2021, dovetailing with recent precedent transactions which have seen cost of debt decreases of 170bps-plus and the perceived de-risking of the Trulieve story on recent results and expansion initiatives,” Tyghe said.

Earlier this month, Trulieve announced the opening of its 65th dispensary in Florida, the company’s fourth in Hillsborough County and its first in the town of Brandon, with the company saying that patient access to medications is driving its statewide expansion.

Last month, Trulieve launched a new line of premium products under its Cultivar Collection, available at select stores starting on October 17.

“Innovation is what drives us as a company. We’re constantly looking for additional ways to bring new products, new strain profiles, and even new flavors of classic favorites to patients, ensuring every patient can find the relief they’re looking for,” said Trulieve’s chief marketing officer Valda Coryat in a press release. “Each strain in the Cultivar Collection is created using unique genetics. We’ve paid close attention to every aspect of these cultivars, from their base strains to their terpene profiles. The Cultivar Collection will offer an elevated experience to our Truliever community.”