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Tons of upside to Trulieve, says Echelon

Echelon Capital Markets analyst Andrew Semple remains on a high with Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News, Analysts, Financials CSE:TRUL), maintaining his “Buy” rating and C$55/share target price for a projected return of 212 per cent in an update to clients on Wednesday.

Florida-based Trulieve Cannabis is a vertically-integrated cannabis operator, engaging in the cultivation, manufacturing and retail of cannabis products in legal state markets in the US. Though the Florida market is the company’s revenue driver, the company also has operations either ongoing or being built in California, Connecticut, Massachusetts, Pennsylvania and West Virginia.

Semple’s latest analysis comes after Trulieve hosted an analyst/investor day in Tallahassee, which included tours of the Company’s Jefferson County cultivation campus and its Midway processing facility as well as a presentation by senior management.

Semple said Trulieve is showing formidable leadership in the Florida market, which he believes to be representative of its ambitions across other US cannabis markets.

“We believe we saw a well-oiled machine through and through, which strengthened our conviction in Trulieve’s long-term potential,” Semple said. “We saw the Company’s ability to produce mid-to-high quality cannabis at massive scale with remarkable consistency through cost-effective modular cultivation deployments, effective uses of automation across the production line, thoughtful approaches to consumer marketing and data integration/utilization, and a deep bench of experienced talent across the executive and regional management levels.”

In particular, Semple was impressed with the modular nature of Trulieve’s Florida operations, namely in its 750,000 square foot cultivation campus which was roughly one-third in use, along with several 24,000 square foot ‘standard’ size modular cultivation buildings and two 46,000 square foot modular buildings.

According to Semple, the modularity of the campus allows Trulieve to add capacity where needed depending on regulatory catalysts while maintaining the ability to produce mid-to-high quality flower in a fast, cost-efficient manner. Semple also believes the model could be of use in Trulieve’s Arizona operations, where the company could consolidate various production facilities acquired over the years.

Semple also noted Trulieve’s emphasis on data-driven marketing, using data collected from its industry leading 168 store retail network, as well as from 100 million digital web page views to date in 2022, along with deploying SAP and trialing other ERP systems across its business.

“This digital infrastructure will support the targeted marketing strategy, as well as potentially improve omnichannel retail and support AI driven product recommendations, amongst other digitally empowered consumer experiences the Company is developing,” Semple said.

Notably, Semple also cited Trulieve President Steve White saying the company could be in a position to act on mergers and acquisitions following its integration of Harvest Health, with Semple speculating that Trulieve could be a beneficiary of potential asset divestitures from Columbia Care and Cresco Labs after the latter announced its intent to acquire the former, despite White not mentioning the possibility directly.

The tour comes on the heels of the company releasing its first quarter financial results for 2022, headlined by $318.3 million in revenue (all report figures are in US dollars, unless otherwise noted).

“We delivered another record quarter while making substantive progress on our plan to optimize assets while preparing for future growth and catalysts,” said Kim Rivers, Chief Executive Officer of Trulieve in a May 12 press release. “In 2022 we expect our strong balance sheet, access to capital and financial discipline will uniquely position us to capitalize on market opportunities created by the macroeconomic factors impacting our industry.”

Since the release of the quarterly report, Trulieve has also worked to expand its retail footprint, having opened two medical dispensaries in West Virginia, along with its 15th dispensary in Pennsylvania, which the company considers a cornerstone market.

“Trulieve is committed to investing in communities where we operate and will offer patients access to high quality products and provide exceptional customer experiences.” Rivers said of Pennsylvania on June 2.

Semple maintained his previous financial estimates for Trulieve, forecasting a jump into 10 figures worth of revenue at $1.34 billion in 2022 for a potential year-over-year increase of 43.3 per cent. Looking ahead to 2023, Semple projects $1.6 billion in revenue, marking potential year-over-year growth of 19.1 per cent.

From a valuation perspective, Semple sees a shift in the company’s EV/Sales multiple from the reported 3.3x in 2021 to a projected 2.2x in 2022, then to a projected 1.9x in 2023 to present a discount to the 5.3x target.

On the margins, Semple maintains a 60 per cent gross margin estimate for both 2022 and 2023, while his adjusted EBITDA figures remain at $460.3 million in 2022 (implied margin of 34.2 per cent) and $591.8 million in 2023 (implied margin of 37 per cent).

In terms of valuation, Semple projects the company’s EV/EBITDA multiple to dip to 6.6x in 2022 and 5.2x in 2023, a significant discount to the 14.2x target.

Trulieve’s share price has tumbled to a 46.4 per cent loss in 2022, unable to sustain an early high of C$33.50/share on February 11 and dropping to a low of C$17.30/share, which is where the stock closed on Thursday.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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