Trulieve Cannabis is a screaming Buy, says Beacon Securities

The stock is hitting lows not seen since Q4 2020 but Beacon Securities analyst Russell Stanley is keeping the faith on US cannabis MSO Trulieve Cannabis (Trulieve Cannabis Stock Quote, Charts, News, Analysts, Financials CSE:TRUL). Stanley delivered an update on the company on Friday where he reiterated his “Buy” rating and C$90.00 target for TRUL, which at the time of publication represented a projected one-year return of 272 per cent.

Florida-based Trulieve has seen its share price dive this past week, falling below the C$30 mark and now around C$24 per share, a far cry from the C$60 level where it was living early last year. The year-long drop-off in the cannabis sector has sunk pretty much all boats, even as companies like Trulieve continue to expand their empires across the US and more and more states move to legalize either medical or recreational marijuana. 

Trulieve’s latest move was to close on an additional $75-million tranche of 8.0 per cent senior secured notes due 2026 under the same terms as the $350 million private placement closed this past October. Trulieve said it plans to use the proceeds for capital expenditures and other general corporate purposes. (All figures in US dollars except where noted otherwise.)

“Trulieve’s strong financial profile and profitable track record afford us access to non-dilutive growth capital at industry leading terms for U.S. cannabis companies with multi-state operations,” said Trulieve CEO Kim Rivers in a Friday press release. “This additional funding provides greater flexibility as we execute on our strategic initiatives in 2022.”

Adding it all up, Stanley says TRUL’s balance sheet now shows $300 million in cash available.

“We view the additional balance sheet flexibility – obtained on very attractive terms by industry standards – as a positive,” Stanley wrote.

“We continue to view TRUL as a particularly compelling opportunity, given its strong financial performance. As discussed in our report card published last month, TRUL continues to rank highly amongst its peers on key margin metrics. Its Q3 adjusted EBITDA margin of 44 per cent ranked second amongst the tracking group of 28 companies, while its operating cash flow margin before working capital of 16 per cent ranked fourth,” he said.

Looking ahead, Stanley is calling for Trulieve to finish 2021 with revenue of $956.3 million and adjusted EBITDA at $398.0 million, while 2022’s revenue and EBITDA numbers are estimated at $1,532.2 million and $594.6 million, respectively, and 2023’s are at $1,945.2 million and $809.7 million, respectively. 

On valuation, Stanley puts TRUL at 4.0x, 2.5x and 1.9x for EV/Revenue for 2021, 2022 and 2023, respectively, and at 9.5x, 6.4x and 4.7x for EV/adj. EBITDA for 2021, 2022 and 2023, respectively. 

On a comps basis, Stanley said TRUL’s 4.7x 2023 adjusted EBITDA forecast represents a 42 per cent discount to the 8.1x average among US cannabis operators listed on the Canadian Securities Exchange (CSE).

In other Trulieve news, the company announced on Thursday a partnership with Miami Mango which will see TRUL launch the popular Mango Haze strain through multiple form factors exclusively in Trulieve locations in South Florida. Starting in late February, TRUL says it will offer Mango Haze in a flight that will include flower, pre-rolls, oils and concentrates. 

“Trulieve is excited to partner with Miami Mango, which has been sought out in South Florida and beyond for decades,” said Rivers in a press release. “As Florida’s market leader, this partnership exemplifies our commitment to providing the highest quality and broadest selection of products to Florida’s medical cannabis community.”

And last week, Trulieve announced a plan for it to be the exclusive Florida producer, processor and retailer of products from cannabis cultivator Connected Cannabis Co, which has a long and revered history in cannabis in California and Arizona. Meanwhile earlier this month, Trulieve became the first Florida company to offer live diamonds, a hydrocarbon extraction-based product for which the initial release of 500 units sold out within 24 hours.

Stanley commented on Trulieve’s recent product development news by saying, “We view the expansion of the product suite and particularly the addition of unique, premium products as a positive step towards further separating TRUL from those peers that compete largely on price.” 

Finally, on the integration of acquired Harvest Heath and Recreation with Trulieve’s operations, Stanley pointed to the opening of a Trulieve-branded medical dispensary in the Center City section of Philadelphia through its affiliate, Harvest of Southeast, where the company will be holding a statewide re-branding event on Saturday.

“We view this development positively, as it reflects further progress towards the integration of Harvest following the closing of the acquisition last October. TRUL completed a similar rebranding of all 14 acquire dispensaries in Florida during October,” Stanley said.