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3 Exciting Reasons Trulieve Looks Like a Strong Buy After Earnings

By Sushree Mohanty - May 27, 2021 at 7:08AM

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After excellent Q1 earnings and a lucrative acquisition deal, this Florida-based pot company is all set to capture the U.S. cannabis industry.

The marijuana industry caught plenty of investor attention last year when it kept soaring amid a global crisis while other sectors were struggling to survive. The drug was deemed an "essential item" in the U.S. and Canada during the lockdown, leading to higher sales. Sales are on the rise this year, too, and the ongoing wave of state legalization in the U.S. is the icing on the cake. The U.S. cannabis companies, in particular, have outshone their Canadian counterparts. Among these, Florida-based Trulieve Cannabis (TCNNF -2.88%) is a rising star that has recorded 13 consecutive quarters of stellar revenue and positive earnings before interest, tax, depreciation, and amortization (EBITDA) -- a rare occurrence for cannabis companies.  

On May 10, this already strong contender in the U.S. cannabis space upped its game by acquiring Arizona-based Harvest Health & Recreation (HRVSF). The deal, valued at $2.1 billion, will give Trulieve a wide hold on the U.S. cannabis market. Let's take a look at three things from its Q1 2021 earnings report, released May 13, that makes this exciting pot stock a strong buy now.

A person holding a jar of marijuana buds in a cannabis dispensary.

Image source: Getty Images.

1. Trulieve's revenue growth seems unstoppable

Trulieve is a classic example of how to strengthen your roots before you spread them. It has established a strong footing in its home state of Florida, with a total of 78 stores and about 2 million square feet of cultivation capacity in the state as of the end of Q1 (March 31). This helped it bolster its revenue growth. 

Florida only allows medical cannabis, while efforts are ongoing to legalize recreational cannabis. Trulieve has boosted its medical cannabis position in other key markets including California, Massachusetts, and Connecticut. It is now getting ready to make a mark with its recreational products. It launched a few high-margin cannabis derivatives -- including gels, chocolates, cookies, and brownies -- for medical cannabis patients in Florida in Q3 2020. The Harvest Health acquisition will help it gain access to even more exciting markets. In its Q1, Trulieve's revenue grew 102% year over year to $194 million.

2. It is a profitable company

Positive EBITDA shows how well a company handles its operating expenses, while net profits are the company's earnings after all deductions. Trulieve managed to achieve both in Q1. Its adjusted EBITDA came in at $91 million, up 87% from the year-ago period. Operating expenses increased to $57 million from $29 million in Q1 2020 due to money spent on continued expansion. However, rising revenue was enough to drive in a positive EBITDA in the quarter.

Additionally, higher revenues and consistent positive EBITDA also contributed to a 27% year-over-year jump in net profits to $30 million for the quarter.

While keeping costs low, the company managed to hold its balance sheet stable. It ended its Q1 with cash and cash equivalents of $162 million and total outstanding debt of $86 million. 

The company is in a good financial position to clear off its debts while growing revenue and profits via continued expansion. In the Q1 earnings call, management stated they expect a surge in operating expenses in 2021 as they continue to expand to new markets, but are confident that it won't dent revenue growth.

3. Its acquisition of Harvest Health is a smart move

Trulieve's acquisition of Harvest Health is subject to shareholder approval in the third quarter. This deal will give it a head start in Arizona, which recently legalized recreational cannabis. Harvest will also add Pennsylvania and Maryland dispensaries to Trulieve's national footprint. With Harvest's help, the combined company will have access to a blossoming marijuana market in the northeast, southeast, and southwest regions.

Harvest Health reported an outstanding first quarter with $88.8 million in revenue and adjusted EBITDA of $26.9 million. With access to 126 dispensaries in 11 states, Trulieve expects the combined company can generate around $1.2 billion in revenue and $461 million in adjusted EBITDA in 2021. A merger between two strong companies will allow taking advantage of each other's efficiencies -- such as the scale of operations, growth strategies, the addition of innovative products and brands, and larger cultivation capacity to generate more revenue and profits. Trulieve alone is working wonders, and the addition of Harvest should help Trulieve become a true cannabis powerhouse in the U.S.

For the full year, Trulieve expects revenue to come in the range of $815 million to $850 million and adjusted EBITDA to be in the range of $355 million to $375 million. Note that this guidance excludes the impact of the Harvest acquisition deal.

No reason to ignore this pot stock!

Trulieve Cannabis was already my top pick in the overall cannabis space even before it made its strategic move to acquire Harvest Health. The company is smart with its growth strategies. It took this bold step when it is already profitable and standing strong instead of going on a spending spree at the initial stages of its development like its Canadian counterpart Aurora Cannabis did, putting the latter business in a difficult financial position.

Marijuana sales could contribute about $92 billion in 2021 and up to $160 billion in 2025 to the U.S. economy, according to Marijuana Business Daily. I have no doubts this combined company will be able to capture a chunk of that market with revenues and profits soaring soon. I see no reason to avoid this pot stock. Even though Trulieve's stock has seen triple-digit gains over the last 12 months, its growth is unlikely to slow down soon. I believe its continued outstanding performance, probable federal legalization (over the next few years), and with the benefits from the Harvest acquisition will bring fruitful returns over the long term.

Consistent stellar revenue and profits, a robust balance sheet, a strong partner in Harvest Health, and an expanding national footprint all make for a strong case to invest in this marijuana stock now.

Sushree Mohanty has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Trulieve Cannabis Stock Quote
Trulieve Cannabis
$12.81 (-2.88%) $0.38
Aurora Cannabis Stock Quote
Aurora Cannabis
$1.73 (-4.42%) $0.08
Harvest Health & Recreation Inc. Stock Quote
Harvest Health & Recreation Inc.

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