Final week, Trulieve put out their annual financials, and I assumed it might be a enjoyable train to write down my evaluation to share with that hashish investing neighborhood. In CY2018, Trulieve managed to perform one thing that only a few within the house have, profitability.
The road gadgets that jumped out at me have been “Honest Worth Changes on Stock Offered” and “Honest Worth Changes on Development of Organic Property.” This is without doubt one of the nuances of Hashish Accounting, which makes gross margins slightly obscure at this stage.
Successfully, corporations acknowledge completed merchandise as income (previous to sale) and make changes afterwards based mostly on the precise promoting value of the merchandise towards the assumed value when the income was initially acknowledged.
They provide you with these numbers based mostly on an estimated promoting value. Which on this case, Trulieve is estimating a median promoting value of $9.93 down from $11.06. This principally as a consequence of an accounting change, the place they switched from accounting for hashish in lively grams of extract (CYQ3) vs. grams of flower (CYQ4). For instance, within the CYQ3 filings Trulieve states their price per gram at $87.40 per lively gram.
Nice Numbers in a “Money Burn Heavy” Area
Total, it’s arduous to not just like the numbers they’re producing relative to nearly anybody within the house. The corporate generated a gross margin earlier than and after the organic asset changes of 66.7% and 102.6%; I advised you these accounting guidelines make issues slightly fuzzy!
If we take a look at the latest quarterlies vs. different Multi-State Operators (MSOs), Trulieve stands out from the gang:
If there’s one factor that needs to be highlighted within the above, it is that Trulieve doesn’t have the identical footprint as different MSOs, and are solely working in states (principally Florida) the place they’re allowed to consolidate all their income. Additionally, a lot of the above corporations are rather more aggressive with M&A and have better income producing energy from acquisitions within the queue. For instance, in MedMen’s case, final quarter they filed US$29.9MM income, and said in a information launch, with pending acquisitions the system broad quantity could be US$49.5MM in quarterly income.
The Money Flows
Trulieve is in a distinct class in comparison with all different MSOs with regards to working money circulate. If we use the identical pattern of MSOs from above, discarding Inexperienced Thumb Industries and Acreage, as a consequence of every of them solely releasing partial info to this point, we are able to see a significant distinction. Trulieve is the one MSO producing optimistic working money circulate and the opposite operators will not be even near being working money circulate optimistic.
Florida Has One Dominant Participant with Few Gamers which might be Largely Public
Within the firm convention name, CEO Kim Rivers said Trulieve has roughly a 62% share of the Florida hashish market (medical). That is largely as a result of Trulieve was the primary to market within the state and rolled out quick.
Public Firm/Mother or father
three Boys Farms
AltMed Florida (MuV)
Tidal (Minority) (RLTY.c)
Colombia Care Florida
Colombia Care (Non-public)
Inexperienced Owl Pharms/ Natures Approach
Inexperienced Thumbs (GTII.c)
Liberty Well being Sciences
Liberty Wholesome (LHS.c)
San Felasco Nurseries
Cresco Labs (CL.c)
There are two methods of this. Both Trulieve is a frontrunner in what is going to probably find yourself the second largest hashish market within the US, or their operational inefficiencies will start to glare as giant rivals start to scale out.
Trulieve Has an Glorious Benefit In The State
Additionally it is vital to notice that Trulieve has one different vital distinction from all rivals in Florida. A settlement from April 2019, based mostly on Trulieve making their early roll-out choices on the premise their could be no cap, has put them able the place they now have an extra 14 dispensaries on high of the capped variety of 35. A superb article by In search of Alpha contributor Jonathan Cooper, highlights the small print of the ordeal.
Trulieve Is Far Behind Exterior Of Florida
Up to now Trulieve has made two acquisitions outdoors of the State of Florida.
Life Essence, a Massachusetts operator Leef Industries, a California operator.
We are able to see from the statements the Massachusetts operator largely consists of a license ready for somebody to construct out with arduous property:
And Leef Industries out of Palm Springs, California, seems to have few property to point out as nicely:
In one other latest In search of Alpha article, contributor James V. Baker referred to Trulieve as a misguided MSO, with the next nugget of details about the Leef Industries dispensary location:
A shareholder who owned a big variety of Trulieve shares, and frequented the Palm Springs space, couldn’t imagine the acquisition of Leef Industries so he despatched an individual to research. That particular person reported Leef Industries is positioned in a strip buying middle with restricted parking. Like different institutions in Palm Springs the dispensary turns into shaded about 2:30 PM when the solar units behind the mountains. Such a sundown could be advantageous in June, July and August when temperatures are typically within the triple digits. Leef Industries previously, nevertheless, has not needed to fear about its utility payments, since a employees member stated it usually closes throughout the summer season months when enterprise disappears together with prospects.
All MSOs are constructed in another way, however Trulieve is actually distinctive. They’re the one firm producing optimistic working money circulate, they’re amongst the leaders in income, and one might argue they’ve a number of accretive acquisitions nonetheless to make in different states. That being stated, their early acquisitions have disillusioned most traders who have been anticipating greater splashes given the businesses working place in such a big state.
Based mostly on This autumn, Trulieve is working at a $60M EBITDA run charge, placing them at a present valuation of lower than 24x EV/EBITDA. In some ways, this makes them an anomaly not for simply MSOs, however for the complete hashish sector.
They nonetheless have room to develop out in Florida, are money circulate optimistic with little long run debt, and have loads of runway throughout the US. I’d argue if traders are watching Trulieve from the sidelines they need to concentrate on the corporate’s execution outdoors of Florida, and monitor how the corporate defends itself inside the state. If Trulieve actually has an operational benefit it can definitely seem in different states as they roll out within the upcoming quarters.
Disclosure: I/now we have no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it. I’ve no enterprise relationship with any firm whose inventory is talked about on this article.