TCNNF (OTC), TRUL (CSE)

Should you invest in Trulieve Cannabis Corp.?

Trulieve Cannabis Corp. engages in the production of cannabis products. The company cultivates and produces its products in-house and distributes cannabis products to its branded stores, as well as directly to patients via home delivery. Its products include smokable flower, inhalation, oral, sublingual, topical, inter-nasal, and concentrates. The company was founded on September 21, 2018, and is headquartered in Quincy, FL.

Fundamentals

Profile:
HQ: Quincy, Florida, USA
Founded: 2018
Facilities: Florida
Symbol: TCNNF (OTC), TRUL (CSE)

Focus: Strong
Trulieve Cannabis Corp is a growth-oriented, licensed, vertically-integrated, seed-to-sale cannabis company headquartered in, and focused on, Florida, the third most populous state in the USA. It is the leading medical cannabis company there, with a significant market share of the state and 43 stores. They also have dispensaries in CA (1), MA (opening soon), and CT (1).

Trulieve grows all its products in-house and distributes them to Trulieve-branded dispensaries in Florida, as well as directly to patients via home delivery. In addition, it manufactures products for approximately 300 SKUs (products), including smokable flower, flower pods for vaporizing, concentrates, topicals, capsules, tinctures, and vape cartridges.

Size: Strong
Market Cap: US $1.18 bil
Enterprise value: $1.24 bil
# of employees: 1800

Markets: Strong
Primary: market leader in Florida
Secondary: MA, CT, and CA in the near future, Canada

Operations: Strong
Cultivation: Current production: Trulieve currently has 1.7 million sf of cultivation space on four sites, using both indoor and greenhouse facilities. It can now grow 30,000 kg of cannabis per year and is increasing its greenhouse capacity. It grows 45 cannabis flower strains and expects to grow revenue in Florida, as that state recently passed legislation allowing the sale of smokable cannabis flower.

Trulieve produces 100% of the products sold in its Trulieve stores. It extracts 50,000 grams of active THC or CBD per week.Cannabis Stock Pot Stock Hemp Stock

It uses ethanol extraction mostly. It also uses CO2 extraction for terpene extraction and CO2 vaporizer products. It has a 55,000 SF building for production and shipping activities, with a kitchen for edible products and a hydrocarbon extraction facility, expecting the future legal sale of edible and hydrocarbon products in Florida.

Distribution:
Direct sales: Patients can order products for delivery on-line or by calling the Trulieve call-center, which takes roughly 2,000 calls per day. It offers next day delivery in most of Florida. Patients can also place orders for in-store pick-up online or via the call center.

Store networks: It operates 43 of the 120 dispensaries in Florida (Florida allows 25 per licensee, plus five once a company reaches 100,000 active patients). Trulieve’s original 14 dispensaries which opened before the cap was enacted are grandfathered in, allowing them 39.

Through February 2019, Trulieve had served nearly 215,000 unique patients in Florida.

Supply agreements: In December 2018, Trulieve bought Life Essence, a seed-to-sale cannabis company developing multiple locations in Massachusetts. Life Essence is applying for licenses to build and operate three medical dispensaries, three recreational stores, and a 126,000 SF cultivation facility.

In November 2018, Trulieve bought 80% of Leef Industries, a licensed medical and adult-use dispensary in Palm Springs, California. It will buy the rest pending purchase approval by California, expected in Q2 of 2019.

Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: Not much, though they will eventually have both medical and adult-use (recreational) businesses

Financials:  Strong
Outstanding shares (diluted): 102 mil
Revenue Ranking is US Cannabis Industry: #1
Last Quarter Year: $133.3 mil
YoY Revenue Growth: 519%
EPS: 0.55

Management: Strong
CEO: Kimberly Rivers, $150,
CFO: Mohan Srinivasan, $200k
COO: Kevin Darmody

Branding: Strong
Trulieve’s CBD products are designed to treat pain, seizures, muscle spasms, nausea, loss of appetite, and symptoms associated with conditions such as cancer. Its products have low THC and are available for patients who need non-euphoric care.

It has over 300 Trulieve-branded products, including smokable flower, flower pods for vaporizing, concentrates, topicals, capsules, tinctures, and vape cartridges. Its marketing consists of education and outreach to physicians, patients, and potential patients.

Trulieve’s educational materials help physicians understand the science behind cannabis, their production standards, and that its products are created to provide relief.

Trulieve offers the “Truliever” loyalty program which grants points and discounts. It communicates with patients and physicians through email, text, social media and online chat.

Valuation: Strong
Current share price: US $10.46
Price to Sales: 5.64 (Tobacco industry Avg. = 5)
P/E Ratio: 8.21
52 week low/high: US $7.46 to $16.23
EV / Revenue: 5.92

Financings: Neutral
In August 2018, it completed a private placement raising net proceeds of $47 million. In May 2018, it borrowed $12 million from directors of Trulieve at 12%.

At the end of 2018, Trulieve had current liabilities of $34.7 million and cash of $24.4 million.

Trulieve plans for aggressive growth from acquisitions and expansions. It expects to raise additional capital. It has banking relationships but not access to traditional bank financing. It has been successful at raising capital privately.

It expects to generate adequate cash to fund continuing operations and their revenue shows it!

Risks: Neutral
The risks of investing in this company may be somewhat lower than many cannabis companies in that Trulieve has substantial revenue and income, and is a leader in its main market (54% market share by their own estimates). However, given the rapid changes affecting the economy generally, and the cannabis industry in particular, no company can guarantee to maintain a competitive advantage in the market.

Trulieve is an exciting cannabis company but is it a great cannabis stock?

Cannabis Stock Pot Stock Hemp Stock

Recommendation: Strong
Trulieve has a very strong position in Florida, the third-largest US medical cannabis market. They have 43 dispensaries, produce 30,000 kgs per year, and based on Q4 2018, are currently on a revenue pace of more than $200 million per year.

They plan to also expand their growing capacity in Florida though they have not specified how much. But they have bought businesses in Mass and CA, and the one in Mass has enough grow space to boost their output to 45,000 kgs per year in the coming few years. This should increase their revenue by 50%, possibly taking them close to $300 million in revenue.

This looks like a strong plan to increase revenue growth for the company. The question is, is this revenue already priced into their stock? Or will the stock price grow as revenue grows?

By our calculations, the company has a price to sales ratio of 5 —about the average in the tobacco industry. This is a great sign for them and shows any revenue growth should drive the stock price higher.

They maintain over 50% market share in Florida, have over 500% revenue growth year over year and have 300+ SKU’s. All this means fantastic growth is ahead. Combine this with the fact they gave back a lot of momentum in 2019 and 2020 should be a perfect year to gain it all back, and more

For investors who don’t mind waiting a year for a solid return, we think Trulieve at its current price presents a good opportunity for long term gain.


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