Trulieve Cannabis (TCNNF 0.19%) is sizzling hot. So far this year, its share price has soared nearly 60%. That's a far better performance than any other major U.S. or Canadian cannabis producer, and it comes on the heels of Trulieve's 47% gain last year.
But such tremendous momentum raises the question of whether the company can keep the good times rolling. Is it too late to buy Trulieve Cannabis? Or is the marijuana stock poised to deliver more fantastic gains in the future?
A growth machine
Perhaps the best argument for why it's not too late to buy Trulieve is that the company continues to be a growth machine. Trulieve reported sales of $120.8 million in the second quarter, a 26% jump from the previous quarter and a record high for the company.
This growth seems likely to continue, at least in the near term. Trulieve raised its full-year 2020 revenue guidance to between $465 million and $485 million. The midpoint of that range is nearly 22% higher than the midpoint of the company's previous full-year revenue outlook. It's also an 88% increase from Trulieve's total revenue last year.
Trulieve continues to dominate Florida's medical cannabis market with a market share of close to 50%. It's adding new stores in the Sunshine State, which could further cement its lead. At the same time, Trulieve is expanding outside of its home state. The company now has operations in four other states: California, Connecticut, Massachusetts, and Pennsylvania.
Unlike many of its peers, Trulieve is already consistently profitable. It posted net income of $6.6 million in Q2. The company's Q2 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled $60.5 million, marking the tenth consecutive quarter of positive results. Trulieve even ranks as the second most profitable pot stock in the world.
Are there any knocks against Trulieve? Sure. Probably the most significant negative for the company is that it's only a matter of time before its growth trajectory slows in Florida.
Trulieve currently operates 59 medical cannabis dispensaries in Florida. It already has stores in all of the biggest cities in the state, plus many other smaller markets. The company will likely reach a point of saturation in Florida in the not-too-distant future.
The company will also almost certainly find it much more difficult to establish dominance in other states. While Trulieve has operations in four other states, its retail locations are operational in only two of them right now.
So is it too late to buy Trulieve? I don't think so. Not at all.
It might be a different story if growth expectations were already largely baked into Trulieve's share price. But the stock trades at only 16 times trailing-12-month earnings. That's downright cheap. Even better, Trulieve's earnings should increase quite a bit.
Yes, Trulieve's growth will eventually slow down in Florida. However, investors shouldn't discount the potential for growth in other states. For example, Trulieve's acquisition of Life Essence gives it three medical cannabis licenses and three recreational marijuana licenses in Massachusetts. The state's total cannabis sales are expected to top $1.2 billion next year.
Trulieve is also in a strong financial position to expand into more states. The company had over $150 million in cash and cash equivalents at the end of June. Because it's profitable, it doesn't have to tap that cash stockpile for funding its ongoing operations.
Don't overlook the potential impact that changes to federal marijuana laws could have for Trulieve, either. It's quite possible that the November elections could pave the way for the U.S. legalization of medical cannabis, or at least federal recognition of individual state authority to enforce their own recreational marijuana laws.
I expect Trulieve to continue its winning ways. But if widespread marijuana legalization of any sort is in the cards, the company's wins could be even bigger in the future.