Risk of Overvaluation

Why Trulieve Stock Is Poised to Double Over the Coming Quarters

The legal marijuana industry has been having a tough go since early this year, weighed down by legislative inactivity from the pro-cannabis Democrats. They’ve promised to legalize cannabis at the federal level, but they haven’t done much on that issue since winning the November 2020 election.

 

This has hurt the share prices of some of the most successful U.S. pot stocks, including Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF). From mid-March to the beginning of November, TCNNF stock tumbled by 53%.

A lot can change in a short period, though.

Since the start of November, Trulieve has announced record third-quarter results. And perhaps more interestingly, Republican lawmakers have filed a bill, the States Reform Act, to legalize, tax, and regulate marijuana at the federal level. (Source: “Republican Lawmakers File Bill to Tax and Regulate Marijuana as Alternative to Democratic Proposals,” Marijuana Moment, November 15, 2021.)

An alternative to the Democratic Party’s more far-reaching proposal on the same topic, the more moderate Republican bill will still legalize cannabis at the federal level and should help bridge a partisan divide.

Investors have responded favorably to the proposed legislation and Trulieve Cannabis Corp’s recent financial results. As of this writing, Trulieve stock is up by 29% month-over-month and four percent year-over-year.

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Chart courtesy of StockCharts.com

The entire cannabis stock market is celebrating the idea that the Republicans could be the ones who get federal cannabis legalization over the finish line.

Although the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) fell by 50% from its March highs to the start of November, as of this writing, it has rallied by 15% over the last month.

Chart courtesy of StockCharts.com

About TCNNF Stock

A lot has been happening in the cannabis industry, and even more has been happening at Trulieve.

In October, the company announced that it had closed on its acquisition of Harvest Health & Recreation Inc. (Source: “Trulieve Completes Acquisition of Harvest Health & Recreation Inc. Creating the Largest and Most Profitable U.S. Cannabis Operator,” Trulieve Cannabis Corp, October 1, 2021.)

The $2.0 billion+ deal created the most profitable, multistate operator in the world’s largest cannabis market. With the acquisition, Trulieve Cannabis Corp now has 155 dispensaries in 11 states and three strategic regional hubs, with market-leading positions in Arizona, Florida, and Pennsylvania.

Also with the acquisition, the company’s cash position increased to $289.0 million while its cash equivalents grew to $71.0 million.

Furthermore, Trulieve Cannabis Corp’s already strong product offering was enhanced by Harvest Health & Recreation’s brands. As a result, Trulieve’s stock-keeping units (SKUs) now total more than 900.

The company also has 3.5 million square feet of cultivation and processing capacity in the U.S.

Record Q3 Results; 15th Consecutive Profitable Quarter

On November 15, Trulieve announced that its revenue for the third quarter ended September 30 increased by 64% year-over-year to $224.1 million. (Source: “Trulieve Reports Record Third Quarter 2021 Results and 15th Consecutive Profitable Quarter,” Trulieve Cannabis Corp, November 15, 2021.)

Its net income went up by seven percent to $18.6 million. The company’s third-quarter net income was negatively impacted by $16.4 million of one-time compensation and transaction costs primarily associated with the acquisition of Harvest Health & Recreation Inc.

Trulieve’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) went up by 43% year-over-year to $98.0 million.

Also during the third quarter, Trulieve Cannabis Corp:

  • Opened seven new dispensaries, increasing its retail footprint to 101 locations nationwide
  • Began its first cultivation operations in West Virginia
  • Closed on its acquisition of the equity of Keystone Shops in Pennsylvania
  • Completed its 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 a product portfolio including the brands “Cultivar Collection,” “Momenta,” “Muse,” and “Sweet Talk”
  • Launched its sale of hydrocarbon extraction concentrates, with its first products available in the state of Florida

Subsequent to the end of the third quarter, Trulieve Cannabis Corp:

  • Completed its acquisition of Harvest Health & Recreation Inc
  • Closed on a $350.0-million private placement of eight-percent senior secured notes
  • Retired $270.1 million of high-cost and short-term Harvest Health & Recreation debt
  • Retired $18.0 million in Trulieve notes payable
  • Opened its first medical dispensaries in West Virginia
  • Converted 14 former Harvest Health & Recreation dispensaries to Trulieve-branded retail locations and opened three Trulieve locations in Florida

Analyst Take

Consistently strong financial results, a blockbuster acquisition, and new developments in the federal legalization of marijuana have positioned Trulieve Cannabis Corp as a leader in the recreational and medical pot industry in the U.S.

That could lead Trulieve stock’s price to more than double over the coming quarters.

 

Originally Posted by Profit Confidential