Trulieve TCNNF Stock to $80 and I show you how

Trulieve TCNNF Stock is an undervalued marijuana stock.  But, how do we know this?  I have been tasked with building a discounted cash flow statement to show the mathematics of how TCNNF stock gets to $80.00.  But, I have also already done a quick analysis where my objective was $78.00, so the math adds up in other ways.

A discounted cash flow statement is an elaborate mathematical spreadsheet that looks at multiple variables.  The variables include time, interest rates, rate of growth of revenues, profits, gross margins, and many other interesting input levels.

What is important to note is that many highly quantitative analysts use this methodology that enables a qualifiable mathematical derivative to establish a price target.  Because this is widely used by these quants, it is important to note as this would be the price target for these quants.  I will be working to incorporate this kind of mathematics into the website in the future and hope to have something concrete in each respective stock page as well as the individual article analysis.

Two different follower’s perspectives

Also, I wanted to show how two different points of view can mean the difference between acquiring a stock, or not.  I did two Zoom calls with two different individuals and they each had a different perspective and timeframe.  Therefore, Tracey and Rob both look at Trulieve differently.  I wanted to share an email that Tracey sent me so that others could see what he said as I thought it was constructive.

Here is the email Tracy sent me:

Hi D.H.,

I hope your week is going well.  I watched your video yesterday with the gentleman in the Mediterranean and thought I would add to the debate regarding Trulieve.

First of all, I think they are a great company.  I agree with him that they will still grow in FL.  The will continue to pick up more customers in FL as more people use cannabis, especially when the state goes full recreational.  However, since they already have 50% market share (you really can’t expect that to continue to increase especially with more and more competition entering the state) and given that they are slowly rolling out other states, I simply believe there is more bang for the buck to be made with smaller MSO and boutiques.

For me, it is simple.  I will most likely someday own more Trulieve as the odds of them picking up another company that I hold are fairly high.  You mentioned Jushi.  That is a great example.  I have Jushi as a holding and odds are they will be picked up by one of the major 4 MSOs, in time.  But my return on Jushi will be higher than that of simply owning Trulieve today.  We saw that with the Harvest Health and Inner Spirit acquisitions.

Having said that, I believe having a larger focus on the top 4 MSO’s would suit him well, given his shorter time horizon.  I have a longer time horizon, so I can afford to take more risk.  He should be taking less risk given his shorter time horizon and if he is going to own cannabis, then the best way for him to achieve lower risk would be to have a higher concentration of the larger MSO’s.  They will also be the first to pay dividends when the time comes.

In summary, I can see a lot of these stocks 10x the current value over the next year or two or three.  Most of your top picks are perfect examples of that.  I cannot see Trulieve at $250/year in a year or two.  I could see them going up 3x – 5x, but not 10x.

Thanks again for all that you do.

Tracy

Trulieve TCNNF Stock Comparison

Here is how Trulieve stacks up to all of the other cannabis companies in the Complete List of Top 100 Cannabis Companies.

  • #6 Market Cap: $3.45B
  • #40 Revenue Growth Rate: 10.8%
  • #8 Gross Margins: 67.2%
  • #8 Operating Efficiencies: 29.6%
  • #1 EBITDA/Revenue: 44.1%
  • #16 Cash/Debt Ratio: 74.1%

Trulieve is in a very strong position.  But, their ability to create future cash is probably the one that will push them to continually lead.  This is basically a competition at this point as to which cannabis company is going to win this competition.

Trulieve Stock Financial Data

Impressive is the best way to characterize Trulieve‘s numbers all-around.

Revenue

Revenues are a thing of beauty, really.  Trulieve continues to gain revenue growth via new openings and organic growth:

Trulieve Revenue
Revenue: To View all Trulieve Financial Data Visit TCNNF Stock Page

With so many new stores opening in Florida recently, revenue growth is at 10% for the quarter.  Keep in mind we were guided for $800M in revenue.  This number looks very easily passable.  Along with that, there will be continued organic growth as same-store rates continue to increase revenues.

Florida is considered underserved.  This means that Trulieve’s customer base will continue to expand.  But, there are some other states that Trulieve could focus on that would get revenue moving higher simultaneously.  Trulieve has 6 other states that if they were to ramp up with acquiring dispensaries as well as potentially opening more there would be strong revenue growth in these states, also.

There are currently 18 states where adult-use cannabis is now legal.  Trulieve, being a premier cannabis company, is only in 6 states now.  Their acquisition of Harvest Health gets them into Arizona but, there are still a few more to go.  Should Trulieve make significant acquisitions in other areas, then revenue growth will have a potentially strong position.

Gross margins

Here is something to look at: Gross margins are some of the strongest of the 100 cannabis companies I cover:

Trulieve Gross Margins
Gross Margins: To View all Trulieve Financial Data Visit TCNNF Stock Page

The most solid cannabis companies are printing between 60% and 65%, so Trulieve’s ability to print some $200M in revenue and push above this is testament to cost saving metrics.  All of this continuously trickles downward to EBTIDA profits and net earnings.

At the same time, should Trulieve use the same management tactics for the other 5 states they are currently operating in and push for higher revenue with strict cost measures, this will go far to serve the bottom line.  Because Florida is so large, comparatively, the additional six states are diluted and we really cannot quantify how well any one state is performing.

Eventually, however, these states will increase dispensary count and with that, revenue.  This will take some time.  But, states such as California are very fragmented.  Having cash like Trulieve does will serve them well by being ultra-competitive.

Operating Efficiencies

Operating efficiencies are a mathematical equation of total operating costs over total revenue.  This tells us how well management’s cost structure is relative to revenue.  And, as you can see, Trulieve is doing very well in this regards:

Trulieve Operating Efficiencies
Operating Efficiencies: To View all Trulieve Financial Data Visit TCNNF Stock Page

The very best companies print about 30% – 35%; you want the very lowest numbers you can get and the best is about 11% of the Complete List of Top 100 Cannabis Companies.

Trulieve has consistently kept costs in check relative to revenue.  As the smaller states grow their own respective foundation this will begin to likely dilute Florida’s presence with its financials.  Look for numbers sub 30%

EBITDA Profits

When we start to build up the discounted cash flow statement, EBITDA plays a foundation.  Here, we see that Trulieve has been consistently EBITDA profitable for some time:

Trulieve EBITDA
EBTIDA: To View all Trulieve Financial Data Visit TCNNF Stock Page

Management guided for $250M EBTIDA profits in 2021.  They have already printed $150M in the first two quarters which, this shows they are likely to blow out these numbers.  My best guess is that they print an additional $75M over the next two quarters, on average.  This gets Trulieve to $300M EBTIDA for 2021.

EBIT Profits

What is the difference between EBTIDA & EBIT?  The D&A, actually.  And, that gets removed from EBITDA and recalculated to get to EBIT:

Trulieve EBIT
EBIT: To View all Trulieve Financial Data Visit TCNNF Stock Page

First, EBITDA is basically Total Operating Profits adding back in Depreciation & Amortization (D&A) – a line item in operating cost portion of the financial statement.  The above is only Earnings Before Interest & Taxation.

The above is also a working assumption that is necessary for building a discounted cash flow statement.  Using the above information with revenue growth and costs, you can work to get to what is likely going to happen in the next few years’ time.

Net Earnings

The best part is that net earnings are positive for Trulieve and, as I mentioned, this is a tremendous advantage for such a large company:

Trulieve Net Earnings
Net Earnings: To View all Trulieve Financial Data Visit TCNNF Stock Page

There are 10 companies on my listing that are net earnings positive.  These companies are all going to be ultra-competitive in the long run simply because they have positive cash coming in to their respective coffers.  Other cannabis companies are going to have to juggle their cash position and possibly even have to raise more cash via stock offerings.

Unlevered Cash Flow

How much cash will Trulieve be generating over the next few years’ time?  This is what we call unlevered cash flow and this is what we try and quantify.

Here are Trulieve’s potential numbers:

Trulieve Unlevered Cash Flow
Unlevered Cash Flow: To View all Trulieve Financial Data Visit TCNNF Stock Page

This is an assumption, or projection.  By building up the models we can see what the future potentially holds for cash flow.

Keep one thing in mind: There are only about 71.7M shares outstanding right now with an additional 54M that could be converted.  What we do not know is how long it will be until the shares are converted and if these shares are going to participate in the future division of cash flow.  If no, then the above is about $8.00 per share.  If yes, it is more like $4.50 per share.

This is what an investor is looking towards; future cash flow.  I have calculated this using the 128M shares outstanding on an as converted basis.

Total Equity

Equity continues to build up for Trulieve:

 

Trulieve Total Equity
Total Equity: To View all Trulieve Financial Data Visit TCNNF Stock Page

The total assets above are what are generating the revenue and capital for the company. It is management’s job to continuously increase assets, and I would say that this chart shows a good representation of this effort.  Given the cost structures, they will continue to push forward.

Cash/Debt Ratio

Having a strong cash balance will serve any marijuana stock very well.

Trulieve has the #1 slot with regards to cash:debt ratio:

Trulieve Cash:Debt Ratio
Cash:Debt Ratio: To View all Trulieve Financial Data Visit TCNNF Stock Page

This will continuously improve Trulieve’s ability to acquire new companies and strengthen their foundation.

Trulieve TCNNF Stock Chart

Many marijuana stocks took a hit over the past few months but, they have recently seen some upside with the NDAA addition of the SAFE Banking Act.  But, I am not a big fan of thinking this is going to really push through the Senate and I think we may see more selling.

TCNNF Stock Chart

Here is a look at the most recent TCNNF stock chart:

Trulieve TCNNF Stock Undervalued marijuana stock
Trulieve TCNNF Stock Undervalued marijuana stock

With what the quants could be looking at regarding future cash flow, there is no valid reason why the stock is so low on a comparative basis.  This tells me there is potentially a lot of upside opportunity.

Is Trulieve TCNNF Stock A Good Buy?

As noted above, two individuals see Trulieve in two different ways.  Tracey thinks that the 50% position in Florida will erode whereas Rob thinks that they will get more competitive in the other states.

I wonder on the Florida situation simply because I have seen reports that the state is significantly underserved at this point.  Right now, there is a significant barrier to entry in the sense that every single cannabis company needs to be vertical.  This makes getting in to Florida expensive.  But, what if the court case that is ongoing rules that the legislation is unconstitutional and that companies do not need to be vertical.  That could significantly shift the dynamics down in Florida.  Also, what if Florida were to flip to adult-use legal?  Again, potentially more dynamic shifting.

I am thinking that Trulieve will have the capability to overcome any newcomers into the scene.  Also, I believe that Trulieve will do well in other states they are just entering and given time will become more competitive.

But, I can see both arguments.

An Undervalued Marijuana Stock

From a discounted cash flow basis, Trulieve should be trading about $80.00.  Interestingly, my less than mathematically quantifiable projection cam in at $78.00; Trulieve is an undervalued marijuana stock.

I believe their positive cash flow and strong position is going to serve them very well.  I also believe they will do more big deals like Harvest Health and build further strong revenue growth potential.  Trulieve is a marijuana stock you need to own.

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