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Is Trulieve a Buy?

By Zhiyuan Sun - May 19, 2021 at 6:05AM

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This state-of-the-art cannabis grower will soon possess the largest dispensary chain in the nation.

Up almost 250% over the past 12 months, Trulieve Cannabis (TRUL 0.00%) (TCNNF 0.54%) has proven itself a top cannabis stock. It's showing no signs of fatigue; the pot grower is now actively seeking out new mergers and acquisitions opportunities. On May 10, Trulieve announced it would acquire fellow cannabis grower Harvest Health & Recreation (HARV) (HRVSF) for $2.1 billion. The deal is subject to shareholder approval in the third quarter.

The deal would create the second-largest cannabis company in the U.S. by sales volume, just below that of Curaleaf Holdings. I think there is still time left to get in on the action. 

Young couple sitting at home and smoking a joint.

Image source: Getty Images.

A fantastic cannabis company

During the first quarter of 2021, Trulieve's revenue grew by a whopping 102% year over year to $193.8 million. At the same time, its net income increased by 27% to $30.1 million. The company expanded to Pennsylvania and Washington in the quarter and opened eight more dispensaries in Florida.

Trulieve has long been the leader of Florida's medical marijuana industry. It has a stunning 48% market share in the sector and a 72% customer retention rate. The company's customer base amounts to over 480,000, with 2.8 individual store visits per month. However, its customer growth has been slowing down due to its massive size.

In the face of mounting competition, Trulieve decided to acquire Harvest Health. If the merger completes, the company will have a combined 126 dispensaries in operation across 11 states, with 90 stores located in Florida. The two companies estimate that they can bring $1.2 billion in sales and $461 million in operating income less non-cash items (EBITDA) for the full year.

Moreover, Trulieve will gain valuable real estate in Arizona, where Harvest Health is a market leader with 15 dispensary chains. That is almost double the number of stores run by the next leading competitor in the state. In Q1 2021, Harvest Health's sales increased by 101% over Q1 2020 to $88.8 million. The company has also managed to bring in $27 million in EBITDA, compared to an EBITDA loss of $4.8 million in the same quarter last year.

Despite legalizing marijuana just last year, Arizona's cannabis market is already on track to generate between $370 million to $400 million in sales by year end. That number is projected to double by 2024.  

What's the verdict?

The best part about the deal is that the new Trulieve will have three cannabis hubs (in the Southwest, Southeast, and Northeast) in the middle of high-density population centers. Right now, Trulieve is only trading for 5.5 times forward revenue. That is cheaper than Green Thumb Industries' 7.3 times sales and Curaleaf's 7.9 times sales. 

Keep in mind: The two cannabis giants will also become the most profitable dispensary chain in the country, with an EBITDA of $461 million and an EBITDA margin of 37%. Overall, Trulieve stock is already cheap enough for a company that's doubling its sales year after year. I'd also highly recommend marijuana investors scoop up some shares for the synergies this new acquisition provides.

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Trulieve Cannabis Stock Quote
Trulieve Cannabis
$12.99 (0.54%) $0.07
Harvest Health & Recreation Inc. Stock Quote
Harvest Health & Recreation Inc.
Trulieve Cannabis Stock Quote
Trulieve Cannabis
$16.60 (0.00%) $0.00
Harvest Health & Recreation Inc. Stock Quote
Harvest Health & Recreation Inc.

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