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Trulieve-Harvest Health deal gets thumbs up at ATB Capital


TrulieveATB Capital Markets analyst Kenric Tyghe says US multi-state operator Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News, Analysts, Financials CSE:TRUL) has found a good match in acquiring Arizona-based Harvest Health & Recreation (Harvest Health & Recreation Stock Quote, Chart, News, Analysts, Financials CSE:HARV). Tyghe reviewed the merger in an update to clients on Monday where he reaffirmed his “Outperform” rating for TRUL and one-year target price of C$78.00.

Trulieve is an adult-use and medical cannabis company with interests in California, Massachusetts, Connecticut, Pennsylvania, West Virginia and Florida, where TRUL is the largest operator with 78 dispensaries along with growing and production facilities.

Tallahassee, Florida-headquartered Trulieve announced on Monday a definitive arrangement agreement to acquire Arizona-based Harvest Health. The merger would see Trulieve pay roughly $2.1 billion for HARV through giving Harvest shareholders 0.1170 Trulileve shares for every Harvest share for an imputed value of C$5.83, representing a 34.0-per-cent premium to HARV’s close of C$4.35 on May 7. Harvest shareholders will effectively hold about 26.7 per cent of the issued and outstanding equity of the combined company. (All figures in US dollars except where noted otherwise.)

Calling the deal the largest and most exciting acquisition so far in the US cannabis space, Trulieve CEO Kim Rivers said the two companies share similar customer values with a focus on going deep in core markets.

“This combination offers us the opportunity to leverage our respective strong foundations and propel us forward with an unparalleled platform for future growth,” said Rivers in a press release.

“Harvest provides us with an immediate and significant presence in new and established markets and accelerates our entry into the adult use space in Arizona. Trulieve and Harvest are leaders in our markets, recognized for our innovation, brands, and operational expertise with true depth and scale in our businesses. We look forward to providing best-in-class service to patients and customers on a broader national scale as we create an iconic US cannabis brand,” Rivers wrote.

By the numbers, Trulieve currently has a six-state footprint compared to Harvest’s nine (Florida, Arizona, Pennsylvania, Maryland, California, Colorado, Nevada, Utah and Massachusetts); Trulieve has 87 operational dispensaries compared to Harvest’s 39; Trulieve has ten cultivation and production facilities compared to HARV’s 12; Trulieve has about 2.2 million sq ft of cultivation and production compared to HARV’s roughly 880,000 sq ft; and Trulieve currently has about 6,400 employees compared to Harvest’s roughly 1,200.

Tyghe said based on consensus estimates the combined entity would generate 2021 revenues of $1.24 billion and have adjusted EBITDA in excess of $461.0 million, making it the second-largest MSO in the country.

“Trulieve’s proposed acquisition of Harvest brings two like-minded management teams with strong leadership positions in their respective home markets of Florida and Arizona and highly complementary footprints in a number of additional highly attractive states including Pennsylvania, Maryland and Massachusetts (and optionality in states including California, Nevada and Colorado). The total addressable market through 2025 of the combined entity increases to roughly $19.3 billion versus stand-alone Trulieve at $12.6 billion,” Tyghe wrote.

“Our unchanged C$78.00 price target is based on the blended average of our DCF and EV/EBITDA valuation methodologies, which imputes a value of C$77.62,” said Tyghe.

“We believe our price target is well-supported given Trulieve’s continued dominance of Florida’s rapidly evolving medical cannabis market and its growing presence in Pennsylvania, California, Connecticut and Massachusetts. Our EV/EBITDA valuation applies a 15.0x target multiple to our revised 2022e EBITDA of $529.0 million. Our terminal value represents roughly 74.0 per cent of our price target and imputes an EV/EBITDA exit multiple of 15.4x,” he wrote.

Trulieve’s share price dipped on Monday after the merger announcement, falling six per cent. TRUL was a big winner in 2020, returning 162 per cent, while so far in 2021 TRUL is up 11 per cent. Harvest Health, which saw an 11-per-cent rise on Monday, finished 2020 down 34 per cent and is now up 76 per cent in 2021.

Trulieve last reported its financials in March where the company’s fourth quarter 2020 featured revenue up 24 per cent year-over-year to $168.4 million and adjusted EBITDA up 19 per cent year-over-year to $78.2 million. For the 2020 year, TRUL’s revenue rose 106 per cent compared to 2019 to $521.5 million and EBITDA climbed 99 per cent to $251.0 million.

Trulieve has been busy over the past month, having closed on a public offering including over-allotment of five million shares for gross proceeds of C$287.5 million, acquired three dispensary permits in West Virginia, opened new Florida dispensaries in the towns of Dunedin and Osprey and closed on the acquisition of Mountaineer Holding, which brought with it a cultivation permit and two dispensary permits for the state of West Virginia.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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