Intrinsic Value Assessment of Trulieve

Many companies have aimed at making a name for themselves in the cannabis market, but no company has reached a more dominant state-wide position than Trulieve.

As we slowly gain traction to the legalisation of cannabis at a federal level, it is becoming increasingly difficult to find a cannabis company with the winning ingredients. We are finding more and more companies entering the space looking to take a cut of the expected $35 billion cannabis market, all at different growth stages and with similar business plans.

Those few, large and safely perceived companies lack the growth and reward investors crave, those companies with an abundance of legroom are plentiful, but an investment in any of those companies can only be deemed as a speculative one. This begs the question; is there a company out there with limited risk with unlimited reward in the cannabis space?

Possibly one, Trulieve Cannabis.

Trulieve is the first, and leading, medical cannabis company in the state of Florida. With 62 of their 67 total dispensaries being in Florida, they are well known and are the first choice for many of the medical cannabis patients. Its widespread dispensary network and large delivery fleet provide important, much-needed access to thousands of patients every day throughout the state. It produces approximately 155 stock keeping units, including smokable flower, flower pods for vaporizing, concentrates, topicals, capsules, tinctures, and vape cartridges.

What makes Trulieve an investment-grade company?

First, and foremost – incredible revenue growth with the potential to run so much further.

They are a company who have produced significant revenue in just four years (from $116 thousand to $252 million). This takes their annualised growth rate to 70%, which is incredible!

Through intelligent placement and focussed effort, they invested heavily in building a portfolio of dispensaries in the state of Florida. And with this network of dispensaries in Florida, they comfortably take home a 51% slice of the medical cannabis pie.

But that's not why this company is a potential bonanza, it holds the status of potential bonanza because, at the time of writing, recreational marijuana hasn't been legalised in Florida…yet.

Let that sink in.

Trulieve management didn't choose Florida randomly; not only is it the third most populous state in the USA but it attracts 120 million domestic and international visitors every year.

What this means for Florida is that it could take an enormous 12% (or $3 billion) of the projected $25 billion legal cannabis market in 2025. Is it too far fetched to assume Trulieve are capable of snagging 51% of the recreational market as well?

What are the risks Trulieve face?

Are Trulieve riddled with debt? No, total liabilities of $381 million is well covered by their $697 million of total assets.

Are their ROE and ROA ratios below industry standard? Far from it.

Their Return of Equity ratio is 12% above the industry and their Return of Assets ratio is 8% above the industry average.

Sounds like a pretty positive risk assessment. But investors should remain cautious. Trulieve only began operating after medical cannabis was legalized in 2016. But you still can't expect to see future growth in the patient count that has been seen over the past 4 years. Trulieve would be wise to look at expanding into areas of Florida which have yet to be touched by the medical cannabis space and continue providing service and products which can't be matched.

Confidence from their success of building a strong presence in Florida has fueled them to seek further revenue in other states by opening dispensaries. This could cause their focus to shift from their operations in Florida, resulting in a lack of effort aimed at maintaining their dominant position there. Investors are recommended to carefully watch where Trulieve allocates capital in the future.

If you have been following the cannabis stock market since March of 2020, you will have noticed many companie's price has rocketed since the crash. Trulieve is no exception, with the price rocketing from $9 Canadian dollars to $34 (at the time of writing). Now I do certainly see the potential in the company, but when recreational cannabis has been legalized. Until then, you're paying a lot of money for what I think could be quite slow and steady revenue growth.

The bottom line

With their dominant position in the medical cannabis market in Florida providing a steady stream of income, an investment in Trulieve will not cause you to have restless nights but safety.

I believe the company at $34 a share to be a bit pricey, considering future growth won't be anything like the past 4 years, and a book value per share of $2.5. You certainly aren't getting much for your money at that price.

Keep a watchful eye on the investments Trulieve management make into other states as it'll present a hard challenge to make a high return on their money.

Trulieve should definitely stay on your watchlist, ready for the opportunity to pounce when the market has a correction. At some point in the future, Florida will legalize recreational cannabis. This will be the catalyst for the stock price to rocket to new heights, so keep your eyes open and be ready to jump aboard.

Disclaimer: Past performance is not an indicator of future performance.

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Mark Page
Mark Page

Mark is a UK born investing enthusiast based in Sydney. He has a keen eye for technical analysis and is paying close attention to the ongoing legalisation of cannabis for the health benefits, opportunities, and emergent industries that will follow.

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