Beacon Securities analyst Russell Stanley likes the trajectory for Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL), which just opened its 73rd dispensary in the US. In an update to clients on Tuesday, Stanley reiterated his “Buy” recommendation and one-year target of C$64.00, saying the company’s Florida retail buildout has surpassed expectations in 2020.
Tallahassee, Florida-based Trulieve, the first and the largest fully-licensed cannabis company in Florida with 68 dispensaries, announced on Monday the opening of a new store in Clermont, near Orlando, where the company already has four retail outlets.
“We opened our first Orlando-area location four years ago and it’s incredible to see how much our community has grown since. In those four years, our focus has remained on developing innovative products that help bring relief and improve the lives of Florida’s patients and we’re glad to open the doors of Clermont’s first dispensary,” said Trulieve CEO Kim Rivers in a press release.
In his report, Stanley noted the new store marks TRUL’s 26th new location year-to-date, which surpasses his forecast as well as management’s original guidance for 2020 of 24 new locations, with still a few weeks to go in the year. Stanley said Trulieve now has 74 per cent more locations than Florida’s next-largest player in the market by store count (Parallel/Suterra Wellness). Altogether, Trulieve has 68 stores in Florida, three in Pennsylvania and one in each of Connecticut and California.
On top of the store count, Stanley said Trulieve dispensaries sell three to four times the product in Florida than the statewide average.
“While TRUL has broken away from the other large players in Florida in terms of dispensary count, it continues to get more ‘mileage’ out of its retail. Based on last week’s sales data, TRUL stores sold 3.9x the flower and 3.1x the oil-based products versus the statewide average (excluding TRUL from the calculation),” Stanley wrote.
“This is the real driver behind TRUL’s dominant share in both flower and oil-based product volume sales (54 per cent and 48 per cent respectively) on a 23 per cent share of the state’s dispensary count,” Stanley said.
At press time, Stanley’s C$64.00 target represented a projected 12-month return of 70 per cent. Looking ahead, the analyst is calling for TRUL to generate 2020 revenue and adjusted EBITDA of $516 million and $247 million, respectively, 2021 revenue and adjusted EBITDA of $848 million and $370 million, respectively, and 2022 revenue and adjusted EBITDA of $1,021 million and $440 million, respectively. (All figures in US dollars except where noted otherwise.)
At the same time, Stanley said there’s considerable room for upside potential on his estimates.
“While patient growth continues to exceed 50 per cent year-over-year, the patient penetration rate is only now approaching 2.1 per cent versus 4.0 per cent+ in Arizona (where the patient count still grew 34 per cent year-over-year in November). We therefore believe we are not yet close to any saturation point that would warrant slowing the pace of retail expansion in Florida,” Stanley wrote.
“If we assume that TRUL adds 26 stores in each of 2021 and 2022, our F2022 EBITDA estimate would improve to $489 million, and justify a C$71/sh price target (all else equal). Moreover, we currently assume some compression in annualized revenue/dispensary from approximately $9.7 million in Q3/20 to $9.2 million in 2021 and $8.5 million in 2022. Should TRUL manage to maintain its current revenue/dispensary levels during the forecast period, our F2022 EBITDA forecast would further improve to $547 million and would support a C$79/sh price target,” he said.
Trulieve’s share price has done well so far in 2020 and is currently up 145 per cent. Even with the gains, Stanley estimated the stock is still undervalued, however. The analyst pegs TRUL to be currently trading at 10x his formal 2021 EBITDA forecast, which he sees as representing a 44-per-cent discount to the 18x average among its peers in the US cannabis operators category. Based on his 2022 EBITDA forecast, Stanley figures TRUL to be trading at 8x, which would be a 43-per-cent discount to the 15x average for its peer group.
On the technical side, too, Stanley said TRUL looks strong, with the stock making new all-time highs supported by strong momentum.
“On a quarter-to-date basis, we estimate that TRUL’s volume sales of flower and oil- based products are tracking growth of 19 per cent and six per cent quarter-on-quarter versus the first nine weeks of Q3/20, which compares well against our forecast for 12 per cent quarter-on-quarter revenue growth from the Florida operations,” Stanley wrote.
Trulieve last reported its financials on November 17 where its third quarter 2020 saw revenue of $136.3 million, up 93 per cent year-over-year, and adjusted EBITDA of $67.5 million, up 83 per cent year-over-year.
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