Trulieve Cannabis is trading at a discount, says Beacon

Stocks in the sector are continuing to languish, but investors should be interested in what Trulieve Cannabis (Trulieve Cannabis Stock Quote, Charts, News, Analysts, Financials CSE:TRUL) has got cooking in the state of Florida, says Beacon Securities analyst Russell Stanley. The analyst delivered a report to clients on Friday where he reiterated a “Buy” rating on TRUL, saying the stock continues to trade at a discount to its peer group.

Trulieve, a multi-state operator with business in 11 states and a dominant position in Florida’s currently medical-only cannabis market, saw its share price peak at just above C$60 per share in early 2021, but it’s been mostly downhill for the two years hence, as has been the case for most pot stocks. Currently in sub-C$10 territory over the past month and a half, TRUL finished 2022 down 70 per cent. 

But Stanley sees upside from here and is pairing his “Buy” rating with a maintained target price of C$52.00, representing at press time a projected one-year return of 484 per cent.

Stanley commented on the Smart & Safe Florida adult-use (AU) initiative which has reportedly collected 294,000 valid signatures, which puts it past the 223K needed to trigger a Supreme Court review of the ballot language. Stanley said the announcement didn’t come as a surprise but represents a positive nonetheless, and he pointed to statements from Trulieve CEO Kim Rivers who last month said Smart & Safe Florida (to which TRUL has contributed $20 million to date) had collected 690K of gross signatures.

Stanley said if 65 per cent of those signatures prove valid, that would make for 450K, which is over halfway to the 892K level needed to secure a spot on the November 2024 ballot.

“Given signature gathering efforts only began last summer, we believe there is ample time to gather additional signatures. The Supreme Court review rejected two AU initiatives in 2021, citing problems with the ballot language. We understand that the new language has been crafted to address those problems, and we therefore believe its odds of clearing the Supreme Court are good,” he said.

As for Trulieve, Stanley said the company would be in the pole position in terms of benefiting from adult use legalization in Florida, as it currently has 41 per cent of oil sales by volume in the state and 42 per cent of flower sales by volume.

Stanley said that comparatively, TRUL is one of the cheapest stocks in the sector, as it currently trades at 4.2x last quarter annualized adjusted EBITDA, representing a 42 per cent discount to the 7.3x group average. At 3.4x his 2023 EV/adjusted EBITDA forecast, TRUL is a 46 per cent discount to the 6.3x peer average.