Trulieve $TCNNF to $78.55 from guidance

Trulieve is a massive dispensary operator in the State of Florida.  And, they are in the process of expanding to 5 additional states.  Trulieve’s growth rate is an exceptional story from this largely grass-roots kind of beginnings.  They currently operate some 79 dispensaries in Florida with ~49% market share.  They plan on doubling the number of dispensaries in short order getting to 115 dispensaries around the country by year’s end.  The stock has moved in kind upwards.  And, Trulieve has issued guidance for the upcoming year.  Given the moves upward in $TCNNF I wanted to break out the financial data and show where the stock could be should they achieve their goals of $850M with $375M in EBITDA profits (Up from $520M & $250M, respectively).

As you can see below, the stock has been progressively moving higher over the past several months:

TCNNF Stock
TCNNF Stock

A technician would love this and say that there is ample upside potential.  I have never been much on the technical sides of trading.  But, it becomes a self-fulfilling prophecy of sorts as others do follow this style of trading. For me, I want to know what value I am going to get if I buy the stock at $47.00 per share.  If I do pick up this stock, how much value will I receive as a shareholder?  And, from that, what upside potential there may be.

Revenues

Revenue is moving higher and will continue over the next four quarters. Here  is the current revenue snapshot:

Trulieve $TCNNF
Projected Revenue

The QoQ growth rate is double-digit.  And, moving forward this will continue; albeit at a slower and diminishing pace.  I looked at the future projections Trulieve stated and added in the future growth potential. As I mentioned, Trulieve expects some $850M in revenues for the upcoming year.  This is a significant increase over the $550M they have just printed for 2020.

Projected Revenue

As you can see from the chart the continued growth is impressive.  I paced out the revenue for each quarter at a slightly declining rate.  I believe this represents a fairly accurate portrayal of what will be printed.

Gross Margins

Trulieve’s Gross margins are solid:

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The previous quarter’s gross margins were a one-off at the elevated level.  The previous three quarters give us a fairly solid understanding of where the margin rate could be for the foreseeable future.  However, also keep in mind that Trulieve is expanding its capacity with new dispensaries.  On the one hand, there will be costs associated with the new dispensaries that may weigh on the overall cost of goods.  On the other hand, grow facilities will be increasing production and therefore have the potential to increase economies of scale.  That could increase gross margins assuming they do not exceed marginal profit levels where profits begin to decline relative to a facility’s ability to produce at optimal levels.

For my projections, I am using the 62.5% level on gross margins.

Operating Costs

One of the points I always emphasize is the need for consistency.  If a company is consistently printing the same metric then as an analyst I can reasonably assume they will do so going forward.  Basically, you want boring.  Here is a pretty good look at what boring looks like:

Operating Efficiencies
Operating Efficiencies

Operating efficiencies tell us how efficiently a company produces a product relative to revenue from the perspective of back-office expenses.  Whereas gross margins tell us what the immediate cost of goods is from an input cost basis, SG&A is incorporated in total operating costs.  From this perspective, Trulieve is an industry leader.  The best companies are printing between 30% – 35% efficiency rates (You want the lowest number possible).  I have seen numbers in the 20s handle.  But, at 31.5%, this is solid especially given the context of sales figures so high.

Net Earnings & EBITDA

EBITDA was positive this quarter for one-offs.  But, what I wanted to look at was the future expectations of EBITDA given the guidance of $250M.  Here is what the likely progression of EBITDA will look like over the course of the next four quarters:

EBTIDA
EBITDA

I wanted to put together a natural progression for both revenue and EBITDA that coincided with the guidance from management.  This should be about what we see; I will adjust as the numbers print moving forward.

One of the things that a potential investor should keep in mind is that Trulieve is very successful in Florida.  They are very likely to use that same blueprint in other states.  Given that experience and expertise, I feel fairly confident that growth will be measured without too many dips owed to excess costs.  But, in Florida, Trulieve focuses on medical only where, say California, they are both medical and recreational legal.  Think that through from another angle: What if Florida goes recreational legal?  Trulieve, with its massive position in the Florida market, will be well-positioned to grow exponentially.  They will already have strains coming from other resources to accommodate this.  I have no idea when Florida will go recreational legal.  But, I do believe it is a matter of when not if.  This will become a hotbed of cannabis growth.

Is Trulieve a good buy?

Tulieve has been moving higher over the past year from its revenue and earnings growth.  This begs to ask the basic question: How much gas is left in the tank for a potential up-move in $TCNNF?

First, I don’t like to approach investing from that perspective.  Instead, ask the question: The stock is trading at $42.00.  How much yield would a potential investment garner at this price point?

The numbers broken down:

  • $850M Revenue
  • 37.5% Cost of Goods
  • 32.5% Total Operating Expenses
  • 10% Continuing Ops
  • ~20% of net earnings @ $170M
  • 120M shares outstanding (Effective)
  • EPS $1.42
  • @ 55x future earnings, this puts the stock at $78.55 per share

Even if you went ultra-conservative with a future earnings multiple matching the S&P 500, you come up with a stock price trading ~$50.00 per share.  But, look at the average EPS future multiple for the S&P 500 and try and rationalize using the same multiple.  The S&P prints an average 3.5% YoY revenue growth.  You cannot compare this growth rate to what Trulieve is about to print.  They just printed $550M in revenue and are going to increase that by 55%.  That is your forward multiple.

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