Ahead of fourth quarter results from Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News, Analysts, Financials CSE:TRUL), Beacon Securities analyst Russell Stanley issued an update to clients on Monday, arguing that the US cannabis company’s newest acquisition will leave Trulieve well-positioned in the emerging medical market in West Virginia.
Florida-based Trulieve announced on Monday a definitive agreement to acquire private company Mountaineer Holding which has a cultivation license and two dispensary licenses in the state of West Virginia. The deal which is expected to close in the second quarter 2021 would see TRUL pay $3 million in cash and $3 million in stock.
“West Virginia just became a lot more interesting with the addition of a cultivation permit asset to our processor and dispensary application wins,” wrote Trulieve CEO Kim Rivers in a press release. “Trulieve is known for our quality flower. Combining our expertise for growing high-quality medical cannabis with our passion for producing a premium product portfolio and providing broad access to a wide variety of medicine for patients will allow us to bring our full Trulieve brand experience to West Virginia.”
Trulieve is the largest fully-licensed cannabis company in Florida with 78 dispensaries and five more elsewhere for a total of 83 nationwide. The company currently has about 50 per cent of the Florida market share based on sales and employs almost 4,000 people, with expansion efforts in Pennsylvania, Massachusetts, Connecticut and West Virginia.
West Virginia first approved medical cannabis in 2017 but it wasn’t until earlier this year that residents were given the green light to register with the state’s Office of Medical Cannabis for access to medical marijuana. West Virginia issued ten cultivation and ten manufacturing licenses over the fourth quarter 2020 and has now issued 100 dispensary licenses in 2021.
In his update, Stanley said Trulieve is now set to take advantage of vertically integrated operations in West Virginia.
“This is a brand-new medical market, so TRUL is now well positioned to be an early mover in WV,” Stanley wrote. “A bill that would legalize edible products is making progress in the state legislature, which could support further growth if enacted.”
Also on Monday and in the same press release, Trulieve announced it has been authorized by the Massachusetts Cannabis Control Commission to begin cultivations operations at the company’s Holyok facility involving 60,000 sq ft of cultivation canopy and 18,000 sq ft of processing capacity. The company said its first harvest is scheduled for the second half of 2021.
Stanley is assuming $10 million in revenue in 2021 from Massachusetts.
“We have not yet included WV in our forecast and look forward to additional detail on development timelines during tomorrow’s earnings call. Given the imminent release of the Q4 results, we are leaving our forecast/valuation unchanged at this point, though we view both the WV and MA developments positively,” Stanley wrote.
Like a number of US cannabis operators, Trulieve’s share price enjoyed a banner 2020, returning 162 per cent. So far in 2021, the stock is up a further 56 per cent.
Stanley sees more upside to the name and with his update the analyst has reiterated his “Buy” rating and C$70.00 target price, which at the time of publication represented a projected 12-month return of 11 per cent.
By the numbers, Stanley is calling for Trulieve to generate full 2020 revenue and adjusted EBITDA of $903 million and $397 million, respectively, while for the fourth quarter 2020, due on Tuesday before the market open, Stanley is estimating revenue and EBITDA of $166 million and $71 million, respectively (consensus is $162 million and $76 million, respectively). (All figures in US dollars except where noted otherwise.)
“This will be the company’s first release in US GAAP, with the primary changes from IFRS reporting relating to biological assets and the treatment of leases, with the latter potentially impacting EBITDA reporting. We will also be looking for potential 2021 guidance as well as an update on the company’s expansion plans,” Stanley wrote.
By comparison, Stanley sees TRUL to be trading at a 20-per-cent discount to its peer group average, estimating TRUL to be a 13x multiple of his 2022 EBITDA forecast versus its US cannabis peers currently trading at 16x.
On the catalyst watch, Stanley pointed to the Q4 results, further buildout updates and additional M&A activity, while at the same time he added this on TRUL’s technicals: “The technical picture continues to look solid, with the uptrend very much intact and the stock threatening to make new all-time highs,” Stanley wrote.
Trulieve’s third quarter 2020 came in mid-November, where the company saw revenue climb 13 per cent sequentially and up 93 per cent year-over-year to $136.3 million. Adjusted EBITDA was up 12 per cent sequentially and up 83 per cent year-over-year to $67.5 million.
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