Trulieve Cannabis still trading at a discount, says Beacon

Russell Stanley of Beacon Securities says the integration by US cannabis multi-state operator Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News, Analysts, Financials CSE:TRUL) of recent acquisition Harvest Health is going well in TRUL’s home state of Florida. In an update to clients on Thursday, Stanley maintained a “Buy” rating and target price of C$90.00/share on TRUL for a projected one-year return of 189 per cent.

Trulieve Cannabis is a vertically integrated cannabis operation engaged in the provision of medical cannabis products and services, cultivating and producing its products in-house and distributing to its branded stores, as well as directly to patients via home delivery. The company operates in 11 states, including a strong market position in Florida as well as positions in Arizona and Pennsylvania.

Stanley’s latest analysis comes after Trulieve announced the planned reopening of a former Harvest Health dispensary in Port St. Lucie. When combined with the reopening of three former Harvest locations in the Miami area earlier this week as well as a greenfield location opening in Bartow, the company’s active dispensary count in the Sunshine State is now at 107.

“We view the timely completion of this effort positively, as it minimizes the downtime for the acquired locations, and demonstrates the combined company’s preparedness on the integration front,” Stanley said.

Since announcing the opening of its 100th Florida dispensary in Tallahassee on October 18, Trulieve’s momentum has continued to build with the rebranded Miami locations and Bartow greenfield, as well as further expanding its presence with new locations in Jacksonville and Lehigh Acres, about 15 miles east of Fort Myers.

“With every location Trulieve opens, we are delivering on our commitment to provide Florida’s patients with safe and reliable access to the cannabis products they rely on,” said Kim Rivers, CEO of Trulieve in the company’s October 28 press release announcing the Port St. Lucie reopening. “We are thrilled to complete the Florida store conversions and look forward to serving patients in every corner of the state as we continue to introduce legacy Harvest brands and welcome customers with an unrivaled retail experience.”

In addition to the ongoing Florida expansion, Trulieve has also worked to take an even greater root in Pennsylvania through the opening of an affiliated dispensary, branded as Harvest of Pittsburgh, which has now been open for a week.

Stanley is a true believer in Trulieve’s potential based on his financial projections, as he forecasts revenue to tick up to $969 million in 2021 (all report figures in US dollars except where noted otherwise), representing a potential year-over-year increase of 86 per cent. From there, Stanley projects Trulieve to hit ten figures of revenue at a forecast of $1.8 billion, a potential year-over-year increase of 85 per cent.

The company’s adjusted EBITDA projections also rise accordingly despite a slightly reduced margin, as Stanley projects $397 million in adjusted EBITDA in 2021 for a margin of 41 per cent compared to the 48.1 per cent margin from the 2020 financials, with a projection of $721 million in adjusted EBITDA for 2022 and a 40.2 per cent margin.

Stanley projects the company’s EV/Sales multiple to drop from the reported 9.4x in 2020 to a projected 5.1x in 2021, then to a projected 2.7x in 2022. Meanwhile, the EV/adjusted EBITDA multiple projections follow a similar path, with Stanley forecasting a drop from the reported 19.6x in 2020 to a projected 12.4x in 2021, then to a projected 6.8x in 2022.

Stanley said the company continues to trade at a discount, clocking in at 6.8x the Beacon Securities adjusted EBITDA forecast for 2022, representing a 31 per cent discount to the 9.9x average amount among its peer group of American cannabis operators.

With the company’s next quarterly financial results to be released on November 15, Stanley is expecting  the quarterly revenue to come in at $218 million with $88 million of adjusted EBITDA, slightly below the consensus projections of $223 million in revenue and $92 million of adjusted EBITDA.

“In addition to the results, we will be looking for an update on the integration of Harvest (though the transaction just closed on October 1st), as well as colour on the company’s operations in Florida, Pennsylvania, and Massachusetts,” Stanley said. “We will also be looking for a refreshed M&A outlook, given we estimate that TRUL has $350 million in cash available as ‘dry powder’ based on our operating and CAPEX assumptions.”

Overall, Trulieve’s stock price is down 25.7 per cent for the year to date, hitting a high point of C$65.60/share on March 16 before falling to a low point of C$30.60/share on September 14.