Could Trulieve (TCNNF) be a Winning Stock in 2022?

Hey Everyone, the following DD is a fraction of the research I did on Trulieve stock (TCNNF). Some of the post will refer to charts and graphics which can be found via the link below. The full DD along with charts can be found on my investment blog: http://tedinvests.com/posts/. Company Description Trulieve is a vertically integrated cannabis company and MSO (multi-state operator) in the U.S. They currently trade under the tickers TCNNF (OTC) and TRUL (CSE). They operate in 11 states and have leading market positions in Arizona, Florida, and Pennsylvania. As of completing the Harvest Health & Recreation Inc. acquisition on October 1st, 2021, the company has over 100 stores in Florida and approximately 150 operated and affiliated dispensaries nationwide. According to their Q3 2021 Earnings Presentation they currently operate in Arizona, California, Colorado, Connecticut, Florida, Massachusetts, Maryland, Nevada, Pennsylvania, West Virginia, and Georgia. Florida is by far the strongest market in which they operate in with 108+ medical dispensaries and ~2.4M sq ft in production capacity. As of October 1, 2021, they had approximately 3.1M sq ft in cultivation and 14 consecutive quarters of profitability. Their portfolio of brands consists of Muse, Momenta, Sweet Talk, Cultivator Collection, Roll One, Alchemy, and Co2lors.  Total Addressable Market & Industry Trends According to New Frontier Data, annual U.S legal cannabis sales were $13.2 billion in 2019 and that number is predicted to reach more than $41 billion by 2025. That growth represents a compounded annual growth rate of 21%. Regarding annual legal sales of medical cannabis, in 2019 sales were estimated to be $5.9 billion and that number is estimated to grow to $16.3 billion by 2025 (CAGR of 19% through 2025). According to a report by flowhub.com, roughly 12% of Americans are active marijuana users and support for legal marijuana is at an all-time high of 68%. CNN Business had released an article on October 28, 2021, in which they stated that U.S legal cannabis sales hit $20 billion in 2020 and were on pace to top $26 billion by the end of 2021. They went on to say that sales were projected to hit $45.9 billion in 2025 according to data from Marijuana Business Daily. That projection was shared at the industry's annual trade show and the CEO of MJBizDaily was quoted stating "These are potentially conservative numbers with what we see playing out." According to a report from Leafly and Whitney Economics, there were 321,000 full-time jobs in the cannabis industry in 2020, up from 234,700 the year before. Regarding these statistics and the fact that cannabis is still not federally legal, it's safe to say that it's a matter of time before we see legalization reform play out on the federal level. While I couldn't find statistics regarding new cannabis sales numbers for 2021, I have no doubt that this year the market grew substantially. I say that with confidence considering that the three largest cannabis companies (Curaleaf, Green Thumb Industries, and Trulieve) increased revenue YoY by 74%, 49%, and 79% respectively according to their most recent filings. To learn more about the market I encourage you to read a post I published in November titled "The Cannabis Industry is in a Downtrend and it's Presenting Buying Opportunities." In that post I aggregated data from Bloomberg, The Wall Street Journal, and other highly regarded publications to present a comprehensive review on the industry.  Trulieve's Hub Strategy Trulieve's strategy for growth is one that is centered around establishing strong footprints in the major geographic regions of the U.S. As of right now they have infrastructure in place within three of the five regions of the country: the southwest, the southeast, and the northeast. The focus on this strategy has to do with their ability to leverage their operations in those areas by increasing store count and blocking off competitors from entering the market as other companies notice their strong footprint. In a recent interview with the CEO of Trulieve and The Philadelphia Inquirer, the CEO explained her strategy. In that interview she was asked "You’ve referred to your company’s expansion plan as your “hub strategy.” What does it entail?" in which she responded by stating the following: "What that means is dividing the country into five regions: the Southeast, Northeast, Southwest, Central and Northwest. And to capitalize not only on near-term catalysts that will likely happen at the state level, but also thinking about how our distribution platform will look as federal change potentially occurs. We started down the path of developing out the Northeast. We acquired two companies in Pennsylvania, began operating in Massachusetts as well as Connecticut, and decided to look broader as we felt that we were positioned at that time to embark on a more transformational acquisition. That’s when Harvest came into focus." - Trulieve CEO, Kim Rivers In that interview she went on to state that "We have 149 locations as well as on the cultivation and production side of the business, we have 3.1 million square feet, which is approximately 50% more than any of our competitors." Thus, Trulieve is looking to really hone in on areas in which they believe they can position themselves to dominate and resonate with consumers now and more importantly in the future.  Q3 2021 Financials Net revenue increased 64% year-over-year to $224.1 million. Gross profit of $153.9 million and gross margin of 68.7% compared to gross profit of $102.2 million and gross margin of 75.0% in the third quarter 2020. Net income of $18.6 million, impacted by $16.4 million of one-time compensation and transaction costs primarily associated with the Harvest acquisition. Adjusted EBITDA1 of $98.0 million, or 43.7% of revenue. Trulieve and Harvest combined third quarter revenue of approximately $316 million, net loss of approximately $9.8 million and adjusted EBITDA of approximately $121 million.2 Positive cash flow from operations of $75.1 million for the nine months ended September 30, 2021. Cash of $213.6 million as of September 30, 2021. Opened 7 new dispensaries, increasing retail footprint to 101 retail locations nationwide. Began first cultivation operations in the state of West Virginia. Closed the acquisition of the equity of Keystone Shops in Pennsylvania. Completed the acquisition of a dispensary license and commenced wholesale operations in Massachusetts. Received a notice of intent to award a Class 1 production license in Georgia. Launched product portfolio: Cultivar Collection, Momenta, Muse, and Sweet Talk. Launched sale of hydrocarbon extraction concentrates with first available products in the state of Florida. Q3 2021 was a quarter in which Trulieve continued building out there footprint as they closed the acquisition of the equity of Keystone Shops in Pennsylvania, opened 7 new dispensaries, and acquired a dispensary license in Georgia. There isn't too much to say regarding these results as the company continues to deliver positive free cash flow and is growing both top and bottom lines. Their cash position remains strong and in their conference call they stated, "we will remain disciplined with our M&A strategy pursuing profitable growth, where we have an opportunity to acquire strategic assets in attractive market at an appropriate price." Something interesting to note with regards to Trulieve and their 50% market share in Florida came from a quote in a Forbes article titled "Inside The Battle Over Florida, The Country’s Largest Medical Cannabis Market." In the article, former cannabis operator Brady Cobb said "There’s a race to the bottom from a pricing standpoint as these companies try to get consumers in the store, Every day there’s a deal coming out offering 30% off flower, 25% off concentrates, 25% off vapes. It’s almost to the point if you got blonde hair and green eyes on Tuesday, you get 20% off.” While this may be concerning for the time being, If Trulieve can manage to increase their share of the Florida market then they will have significant pricing power. The question that arises from their Q3 2021 financials is how they plan to fund their M&A strategy in order to capture significant market share in other states. Trulieve had acquired Harvest Heath in an all stock deal in which shareholders were diluted by 50,874,175 shares. We'll have to wait and see how Trulieve drives growth initiatives in the future with regards to their hub strategy. After reviewing the most recent financial reports of Green Thumb Industries (Trulieve's closest competitor) and Trulieve I noticed a number of things. Trulieve has $213M in cash while Green Thumb has $286M. The disparity in cash likely comes from debt that Green Thumb raised through diluting shareholders. Green Thumb has 231 million shares outstanding while Trulieve has 137 million. The number of shares outstanding may change drastically as Trulieve just finished the acquisition of Harvest Health & Recreation Inc. acquisition on October 1st, 2021 (Q4). Furthermore, Green Thumb had $233 million in revenue in the most recent quarter (Q3) and $20M hit the bottom line. Trulieve on the other hand had $224 million in revenue and $18.6 million hit the bottom line. Thus, Green Thumb reported a net margin of 8.5% while Trulieve reported a net margin of 8.3%. One thing I question is how much revenue Trulieve will bring in once Florida (their biggest market) is fully legalized. Trulieve is heavily concentrated in Florida with 71% of their dispensaries being located in that state. Green Thumb operates in 15 states while Trulieve operates in 11 states with a heavy concentration in Florida. In addition, based on what I'm interpreting from interviews with the companies CEOs and their investor presentations, Green Thumb is more focused on establishing their brands more so than Trulieve. I could be wrong in my interpretation and we'll have to see in the future as to which brands come out on top. Nevertheless, both companies are implementing slightly different strategies and investors should be aware as to how Trulieve and Green Thumb Industries differ.  Product/Service Reviews Instead of diving into all the product reviews and individual store reviews of Trulieve I chose to look at the whole company through the lens of Truspilot. By no means is Trustpilot the only source you should go to to look at reviews of the company, but it does give us a fair overview of what consumers are thinking. Based on the reviews on Trustpilot It's fair to say that consumers have mixed feelings. On the one hand people such as Shirley seemed to have a positive experience with their store in Sebring Florida and stated "The staff was very knowledgeable and helpful... I would recommend this store to anyone who is looking to get started." On the other hand, their are people such as the user that goes by the name "Canna World'' which stated that "they don't care about the patients." This user also mentioned something that I had not known, which was the fact that the husband of Trulieve's CEO (John Burnette) was sentenced to three years in prison due to corruption. In an article from ganjapreneur.com, the publication stated that "Burnette told undercover agents that he had influenced Florida House Rep. Halsey Beshears (R) to insert language into Florida‘s medical cannabis bill containing a controversial barrier to entry that would benefit both Burnette and the Beshears family." The news of this corruption is alarming from a consumer and investor standpoint as it tarnishes Trulieve's brand. I wonder how much damage the news of the corruption caused to Trulieve's reputation as a cannabis leader. The news came out in August of 2021 and we have yet to see how much it has affected Trulieve's operations.  Conclusion Overall I like Trulieve and their business model but I have a number of concerns that will take time to be addressed. Firstly, I would like to see how the company's heavy concentration in Florida will play out as competition increases. Additionally, I'm curious to see how consumers will view Trulieve going forward after the CEO's husband was sentenced to three years in prison due to corruption in the Florida market. Nevertheless, the company has reported 14 consecutive quarters of profitability and they have positive free cash flow. Their balance sheet looks healthy with over $200 million in cash which will carry them well in driving their hub strategy forward. Considering that the cannabis sector has been hit heavily and many retail and institutional buyers have yet to invest in the cannabis market, it seems like a good time to start a position in the company for those investors that understand the financials and the company's vision. I have no doubt that the company will continue to expand their footprint in the U.S and increase profitability. As always, it's important to do your own due diligence and understand the risks associated with investing in cannabis stocks. I hope you enjoy reading this post as much as I enjoyed writing it. Best of luck!

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Could Trulieve (TCNNF) be a Winning Stock in 2022?

bullish
Hey Everyone, the following DD is a fraction of the research I did on Trulieve stock (TCNNF). Some of the post will refer to charts and graphics which can be found via the link below.
The full DD along with charts can be found on my investment blog: http://tedinvests.com/posts/.

Company Description

Trulieve is a vertically integrated cannabis company and MSO (multi-state operator) in the U.S. They currently trade under the tickers TCNNF (OTC) and TRUL (CSE). They operate in 11 states and have leading market positions in Arizona, Florida, and Pennsylvania. As of completing the Harvest Health & Recreation Inc. acquisition on October 1st, 2021, the company has over 100 stores in Florida and approximately 150 operated and affiliated dispensaries nationwide. According to their Q3 2021 Earnings Presentation they currently operate in Arizona, California, Colorado, Connecticut, Florida, Massachusetts, Maryland, Nevada, Pennsylvania, West Virginia, and Georgia. Florida is by far the strongest market in which they operate in with 108+ medical dispensaries and ~2.4M sq ft in production capacity. As of October 1, 2021, they had approximately 3.1M sq ft in cultivation and 14 consecutive quarters of profitability. Their portfolio of brands consists of Muse, Momenta, Sweet Talk, Cultivator Collection, Roll One, Alchemy, and Co2lors.

Total Addressable Market & Industry Trends

According to New Frontier Data, annual U.S legal cannabis sales were $13.2 billion in 2019 and that number is predicted to reach more than $41 billion by 2025. That growth represents a compounded annual growth rate of 21%. Regarding annual legal sales of medical cannabis, in 2019 sales were estimated to be $5.9 billion and that number is estimated to grow to $16.3 billion by 2025 (CAGR of 19% through 2025). According to a report by flowhub.com, roughly 12% of Americans are active marijuana users and support for legal marijuana is at an all-time high of 68%. CNN Business had released an article on October 28, 2021, in which they stated that U.S legal cannabis sales hit $20 billion in 2020 and were on pace to top $26 billion by the end of 2021. They went on to say that sales were projected to hit $45.9 billion in 2025 according to data from Marijuana Business Daily. That projection was shared at the industry's annual trade show and the CEO of MJBizDaily was quoted stating "These are potentially conservative numbers with what we see playing out." According to a report from Leafly and Whitney Economics, there were 321,000 full-time jobs in the cannabis industry in 2020, up from 234,700 the year before. Regarding these statistics and the fact that cannabis is still not federally legal, it's safe to say that it's a matter of time before we see legalization reform play out on the federal level. While I couldn't find statistics regarding new cannabis sales numbers for 2021, I have no doubt that this year the market grew substantially. I say that with confidence considering that the three largest cannabis companies (Curaleaf, Green Thumb Industries, and Trulieve) increased revenue YoY by 74%, 49%, and 79% respectively according to their most recent filings. To learn more about the market I encourage you to read a post I published in November titled "The Cannabis Industry is in a Downtrend and it's Presenting Buying Opportunities." In that post I aggregated data from Bloomberg, The Wall Street Journal, and other highly regarded publications to present a comprehensive review on the industry.

Trulieve's Hub Strategy

Trulieve's strategy for growth is one that is centered around establishing strong footprints in the major geographic regions of the U.S. As of right now they have infrastructure in place within three of the five regions of the country: the southwest, the southeast, and the northeast. The focus on this strategy has to do with their ability to leverage their operations in those areas by increasing store count and blocking off competitors from entering the market as other companies notice their strong footprint. In a recent interview with the CEO of Trulieve and The Philadelphia Inquirer, the CEO explained her strategy. In that interview she was asked "You've referred to your company's expansion plan as your “hub strategy.” What does it entail?" in which she responded by stating the following:

"What that means is dividing the country into five regions: the Southeast, Northeast, Southwest, Central and Northwest. And to capitalize not only on near-term catalysts that will likely happen at the state level, but also thinking about how our distribution platform will look as federal change potentially occurs. We started down the path of developing out the Northeast. We acquired two companies in Pennsylvania, began operating in Massachusetts as well as Connecticut, and decided to look broader as we felt that we were positioned at that time to embark on a more transformational acquisition. That's when Harvest came into focus."

- Trulieve CEO, Kim Rivers

In that interview she went on to state that "We have 149 locations as well as on the cultivation and production side of the business, we have 3.1 million square feet, which is approximately 50% more than any of our competitors." Thus, Trulieve is looking to really hone in on areas in which they believe they can position themselves to dominate and resonate with consumers now and more importantly in the future.

Q3 2021 Financials

  • Net revenue increased 64% year-over-year to $224.1 million.
  • Gross profit of $153.9 million and gross margin of 68.7% compared to gross profit of $102.2 million and gross margin of 75.0% in the third quarter 2020.
  • Net income of $18.6 million, impacted by $16.4 million of one-time compensation and transaction costs primarily associated with the Harvest acquisition.
  • Adjusted EBITDA1 of $98.0 million, or 43.7% of revenue.
  • Trulieve and Harvest combined third quarter revenue of approximately $316 million, net loss of approximately $9.8 million and adjusted EBITDA of approximately $121 million.2
  • Positive cash flow from operations of $75.1 million for the nine months ended September 30, 2021.
  • Cash of $213.6 million as of September 30, 2021.
  • Opened 7 new dispensaries, increasing retail footprint to 101 retail locations nationwide.
  • Began first cultivation operations in the state of West Virginia.
  • Closed the acquisition of the equity of Keystone Shops in Pennsylvania.
  • Completed the acquisition of a dispensary license and commenced wholesale operations in Massachusetts.
  • Received a notice of intent to award a Class 1 production license in Georgia.
  • Launched product portfolio: Cultivar Collection, Momenta, Muse, and Sweet Talk.
  • Launched sale of hydrocarbon extraction concentrates with first available products in the state of Florida.

Q3 2021 was a quarter in which Trulieve continued building out there footprint as they closed the acquisition of the equity of Keystone Shops in Pennsylvania, opened 7 new dispensaries, and acquired a dispensary license in Georgia. There isn't too much to say regarding these results as the company continues to deliver positive free cash flow and is growing both top and bottom lines. Their cash position remains strong and in their conference call they stated, "we will remain disciplined with our M&A strategy pursuing profitable growth, where we have an opportunity to acquire strategic assets in attractive market at an appropriate price." Something interesting to note with regards to Trulieve and their 50% market share in Florida came from a quote in a Forbes article titled "Inside The Battle Over Florida, The Country's Largest Medical Cannabis Market." In the article, former cannabis operator Brady Cobb said "There's a race to the bottom from a pricing standpoint as these companies try to get consumers in the store, Every day there's a deal coming out offering 30% off flower, 25% off concentrates, 25% off vapes. It's almost to the point if you got blonde hair and green eyes on Tuesday, you get 20% off.” While this may be concerning for the time being, If Trulieve can manage to increase their share of the Florida market then they will have significant pricing power. The question that arises from their Q3 2021 financials is how they plan to fund their M&A strategy in order to capture significant market share in other states. Trulieve had acquired Harvest Heath in an all stock deal in which shareholders were diluted by 50,874,175 shares. We'll have to wait and see how Trulieve drives growth initiatives in the future with regards to their hub strategy.

After reviewing the most recent financial reports of Green Thumb Industries (Trulieve's closest competitor) and Trulieve I noticed a number of things. Trulieve has $213M in cash while Green Thumb has $286M. The disparity in cash likely comes from debt that Green Thumb raised through diluting shareholders. Green Thumb has 231 million shares outstanding while Trulieve has 137 million. The number of shares outstanding may change drastically as Trulieve just finished the acquisition of Harvest Health & Recreation Inc. acquisition on October 1st, 2021 (Q4). Furthermore, Green Thumb had $233 million in revenue in the most recent quarter (Q3) and $20M hit the bottom line. Trulieve on the other hand had $224 million in revenue and $18.6 million hit the bottom line. Thus, Green Thumb reported a net margin of 8.5% while Trulieve reported a net margin of 8.3%. One thing I question is how much revenue Trulieve will bring in once Florida (their biggest market) is fully legalized. Trulieve is heavily concentrated in Florida with 71% of their dispensaries being located in that state. Green Thumb operates in 15 states while Trulieve operates in 11 states with a heavy concentration in Florida. In addition, based on what I'm interpreting from interviews with the companies CEOs and their investor presentations, Green Thumb is more focused on establishing their brands more so than Trulieve. I could be wrong in my interpretation and we'll have to see in the future as to which brands come out on top. Nevertheless, both companies are implementing slightly different strategies and investors should be aware as to how Trulieve and Green Thumb Industries differ.

Product/Service Reviews

Instead of diving into all the product reviews and individual store reviews of Trulieve I chose to look at the whole company through the lens of Truspilot. By no means is Trustpilot the only source you should go to to look at reviews of the company, but it does give us a fair overview of what consumers are thinking. Based on the reviews on Trustpilot It's fair to say that consumers have mixed feelings. On the one hand people such as Shirley seemed to have a positive experience with their store in Sebring Florida and stated "The staff was very knowledgeable and helpful... I would recommend this store to anyone who is looking to get started." On the other hand, their are people such as the user that goes by the name "Canna World'' which stated that "they don't care about the patients." This user also mentioned something that I had not known, which was the fact that the husband of Trulieve's CEO (John Burnette) was sentenced to three years in prison due to corruption. In an article from ganjapreneur.com, the publication stated that "Burnette told undercover agents that he had influenced Florida House Rep. Halsey Beshears (R) to insert language into Florida‘s medical cannabis bill containing a controversial barrier to entry that would benefit both Burnette and the Beshears family." The news of this corruption is alarming from a consumer and investor standpoint as it tarnishes Trulieve's brand. I wonder how much damage the news of the corruption caused to Trulieve's reputation as a cannabis leader. The news came out in August of 2021 and we have yet to see how much it has affected Trulieve's operations.

Conclusion

Overall I like Trulieve and their business model but I have a number of concerns that will take time to be addressed. Firstly, I would like to see how the company's heavy concentration in Florida will play out as competition increases. Additionally, I'm curious to see how consumers will view Trulieve going forward after the CEO's husband was sentenced to three years in prison due to corruption in the Florida market. Nevertheless, the company has reported 14 consecutive quarters of profitability and they have positive free cash flow. Their balance sheet looks healthy with over $200 million in cash which will carry them well in driving their hub strategy forward. Considering that the cannabis sector has been hit heavily and many retail and institutional buyers have yet to invest in the cannabis market, it seems like a good time to start a position in the company for those investors that understand the financials and the company's vision. I have no doubt that the company will continue to expand their footprint in the U.S and increase profitability. As always, it's important to do your own due diligence and understand the risks associated with investing in cannabis stocks. I hope you enjoy reading this post as much as I enjoyed writing it. Best of luck!

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