Trulieve Cannabis Again Posts Industry-Leading Profits. Can They Continue?

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Trulieve’s gross profits were 73% of March quarter sales.


With its dominance of Florida’s cannabis market,

Trulieve Cannabis

just reported another quarter of breathtaking profits. A recent merger deal will vault the company from that single-state concentration to an 11-state chain, so investors will be watching to see how Trulieve’s industry-leading margins respond to multistate operation.

Thursday morning, Trulieve (ticker: TCNNF) reported that its March quarter sales doubled to $193.8 million. That practically tied the company with

Green Thumb Industries

(GTBIF) as the world’s second-largest legal seller of marijuana, behind

Curaleaf Holdings

(CURLF). But Trulieve’s March earnings of $30 million, or 24 cents a share, exceed any rival’s.

Trulieve stock slipped 2% in Thursday morning trading, to $38.80, against a 1% rise in the overall stock market. While down from a February peak near $54, the stock remains up nearly fourfold from a year ago.

Last week, Trulieve announced a $2.1 billion all-stock deal to acquire

Harvest Health & Recreation

(HRVSF). It is the largest merger in the history of the American cannabis industry, whose members sell weed where states allow it under their laws, even though the drug remains illegal under U.S. federal law. That federal illegality keeps the U.S. operators from interstate commerce and major stock exchanges, although Democratic leaders in Congress want to liberalize federal treatment of the industry.

“The pending acquisition of Harvest will be transformative,” said Trulieve chief executive
Kim Rivers
in the company’s earnings announcement. “We expect many positive catalysts in the months ahead, which align well with the current political environment and heightened focus on cannabis in this country.”

Trulieve’s Florida focus has produced remarkable margins. Gross profits were 73% of March quarter sales, while earnings before interest, taxes, depreciation and amortization were 47% of revenue (after excluding noncash charges and expenses that Trulieve deemed one-time events, such as the impact of Covid-19). By comparison, Green Thumb’s March quarter gross margin was 57%, while its adjusted Ebitda was 37%. Curaleaf’s gross margin for the quarter was 49%, with adjusted Ebitda of 24% on the quarter’s $260 million in sales.

While Trulieve has had some sales in states such as Pennsylvania and Massachusetts, the Harvest merger will pose a bracing challenge to its industry-leading efficiency. In its Thursday release, Trulieve noted that Harvest had adjusted Ebitda of $26.9 million on March quarter sales of $88.8 million, which works out to an Ebitda margin of 30%. Before the merger deal, Trulieve had told analysts to expect a 2021 year Ebitda margin of about 44%, on sales of more than $815 million.

Analysts including Needham’s Matt McGinley have noted that Trulieve trades as a discount to other large cannabis chains, as investors wonder whether Rivers can maintain margins as the company expands from Florida, into a multistate operation. Like most who follow the stock, he rates it a Buy. His price target is $60.75, representing upside of 50%.

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