Trulieve Cannabis Corp. (CSE: TRUL) (OTCL: TCNNF) is a vertically integrated cannabis company which operates under licenses in six states including Florida, Mass., Calif., Conn., Penn., and West Virginia, notes Ryan Irvine, CEO of Keystone Financial and contributing editor of Internet Wealth Builder.
It cultivates, produces, and sells medicinal-use and recreational cannabis products within these states. Of the six states, only California and Massachusetts allow both the sale of medical and recreational cannabis.
Revenues for the fourth quarter ended Dec. 31, were $168.4 million, representing an increase of 111% from $79.7 million for the prior year’s quarter.
The large increase was primarily due to the addition of 28 Florida-based dispensaries during the 2020 fiscal year. Note that the company reports in U.S. dollars.
In the fourth quarter of 2020, Trulieve generated EBITDA of $78.2 million, up 74% from $45 million realized in the same quarter last year. However, the company’s net earnings decreased 93% to $3 million compared to $45.5 million for Q4 2020. There were two primary causes for this.
First, because cannabis remains illegal Federally, U.S. tax laws only allow cannabis companies to deduct expenses that are directly related to production of the products. There was a large hike in income tax expense due to the significant increase in gross profit as a result of increasing retail sales.
Second, TRUL posted higher sales and marketing costs, which was a result of a higher head count for the year as the company continues to add dispensaries.
On May 10, Trulieve and Harvest Health & Recreation (CSE: HARV) (OTC: HRVSF) announced they entered into a definitive agreement through which Trulieve will acquire all of the shares of Harvest for stock of Trulieve, representing total consideration of approximately $2.1 billion.
This is a good deal for Trulieve. Here are some highlights:
* Increases scale across hub markets through the creation of the largest U.S. cannabis operator on a combined retail and cultivation footprint basis.
* Creates the most profitable U.S. multi state operator with combined 2020 adjusted EBITDA of $266 million and combined 2021 expected consensus adjusted EBITDA of $461 million.
* Delivers a superior existing retail and distribution model — from a robust retail network of 126 dispensaries across 11 states.
The combined company will have leading market shares in Arizona and Florida. Strong and expanding multi-state presence, bolstering Trulieve's expansion in the U.S. northeast and southeast hubs and establishing a southwest hub in core markets including Arizona, where recreational adult use of cannabis was recently legalized.
Including the additional shares issued from the April equity raise, Trulieve has an enterprise value of approximately $4.88 billion (prior to the Harvest acquisition).
Based on the midpoint of management’s forward fiscal 2021 EBITDA guidance of $365 million, TRUL is trading at under 13 times forward EBITDA. And based on the company’s trailing EBITDA of $255.6 million, the company is currently trading at 17.5 times trailing EV/EBITDA.
If TRUL is able to meet management’s fiscal 2021 guidance of $365 million, and trade with a justified EV/EBITDA multiple of just 16.5 times — relatively conservative compared to its current trailing figure — we estimate fair value for the stock over the mid-term to be approximately C$62 per share. Buy.
