Trulieve Cannabis Corp. (TCNNF) is a vertically integrated cannabis company and multi-state operator in the US, notes Ryan Irvine, contributing editor to Internet Wealth Builder.
The company continues to grow operations and expand, building scale in retail and distribution in new markets through its hub strategy.
As at the end of its most recent quarter, Trulieve operated 162 dispensaries, which included 113 in Florida, 19 affiliated dispensaries in Pennsylvania, 17 in Arizona, and 13 in other states. It also operated cultivation and processing facilities in Arizona, Colorado, Florida, Maryland, Massachusetts, Nevada, Pennsylvania, and West Virginia.
Second quarter revenue increased 49% year-over-year to $320.3 million. Gross profit was $182.2 million and GAAP gross margin was 57%. Adjusted EBITDA grew 17% year-over-year to $111 million, or 35% of revenue compared to $105.5 million, or 33% of revenue in the first quarter of 2022.
The company reported a net loss of $22.5 million, an improvement of 30% over the prior quarter. Adjusted net loss was $1.1 million, which excluded several non-recurring charges. At the company’s most recent investor day, management reiterated its 2022 financial guidance (US$1.3-1.4 billion in revenue and US$450-500 million in adjusted EBITDA).
We believe industry consolidation will be an ongoing trend, and with Trulieve having executed seven acquisitions in 2021 alone, including the largest in the industry, we think the company is confident that it has the prowess to close and integrate a succession of acquisitions.
Following a very strong start to 2021, Truleive’s shares have corrected significantly over the past 8-12 months as the entire cannabis sector has sold off sharply. With shares trading at 7.7 times trailing EV/EBITDA, Trulieve remains at a discount to its peers despite higher profitability.
Currently, the company trades at 6.3x 2022 EV/EBITDA versus its closest peer at around 10x. By applying a multiple to Trulieve based on the low end of its peer equivalents multiples of 10, we arrive at a fair value of roughly $29.50.
At present, we are not recommending above-average exposure to the cannabis segment, which faces challenges in both Canada and the US. However, with growth and relatively reasonable valuations in the event positive legislation comes over the next 1 to 3 years, Trulieve continues to make sense in a growth portfolio for risk-tolerant readers. We maintain our speculative buy rating.