It's a big week for the cannabis industry as some of the major players report their earnings over the coming days. Trulieve Cannabis (TCNNF 11.39%) will release its second-quarter results on Aug. 12 before the markets open. Year to date, the pot stock is up just a modest 5% while the S&P 500 has risen more than 18%.

For Trulieve's shares to rally, the company is going to need to have another strong period that shows more than just year-over-year sales growth. Here are three things in particular that investors should watch for when the cannabis producer reports its earnings. These factors could dictate which direction the pot stock takes afterward.

Person holding chart showing soaring numbers, with others seated at a table.

Image source: Getty Images.

1. If it's on track to hit its revenue and adjusted EBITDA targets for the year

When Trulieve reported its fourth-quarter results on March 23 for the last three months of 2020, it also announced its guidance for 2021. For the current year, the company expects revenue to fall within a range of $815 million to $850 million. At the low end of that guidance, its sales would be up 56% year over year. And if it hits the top end, then the growth rate would be a 63% improvement from the $521.5 million the company reported in 2020. The company is also expecting adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be between $355 million and $375 million -- a more than $100 million improvement from the $251 million profit it reported last year. 

In the first quarter, for the period ending March 31, Trulieve's revenue was $193.8 million. If it maintained that level of sales throughout all four quarters, its annual revenue would fall short of its guidance, coming in at $775.2 million. However, its adjusted EBITDA of $90.8 million during the period would be on track to hit $363.2 million over a full year, falling right within its forecast. 

Trulieve will need some better numbers, at least on the top line, if it's to hit its guidance. And if it does really well and upgrades its guidance, that could be a surefire way for the stock to attract a lot of bullishness.

2. If its gross profit is still falling

One area that investors shouldn't overlook is the company's gross margin, as that could determine how likely it will be for Trulieve to post a strong bottom line over the long term. In Q1, the company's gross margin was 70% of revenue, compared with 71% a period earlier. A year before that, its margins were around 75%. 

As Trulieve expands its business to other states and offers more products, some erosion in its gross margin could continue. That's because if it gets aggressive in its pursuit of market share, its prices could come down and leave less margin to cover its remaining operating costs and overhead. And that could make long-term profitability more of a challenge, especially as it grows its operations beyond just Florida and its costs increase.

3. An update on non-Florida operations

Trulieve has been expanding its operations out of its home state of Florida, and that's another area of importance for investors to focus on. Doing well in other states will be key to showing investors that it can replicate the success it's having in Florida in other parts of the country.

The company doesn't break out sales by region, but that could change as it starts building up market share in other states. In addition to Florida, Trulieve has operations in Pennsylvania, Massachusetts, California, Connecticut, and West Virginia; it began cultivation activities in the Mountain State just last month. In May, Trulieve also announced the $2.1 billion acquisition of multistate operator Harvest Health & Recreation, which would give it access to the Arizona market. Trulieve may use the Q2 earnings release as an opportunity to update investors on the progress on that deal and how close it is to completion.

An update on a non-Florida market to help demonstrate its progress in other states is important because, while Trulieve's been making moves and announcing expansion efforts, it's been hard to quantify any success beyond just its home state.

Is Trulieve a buy heading into earnings?

There are some question marks surrounding Trulieve's business that would make me hesitant to invest in it today. Although the company has done well and boasts 13 straight periods of profitability, that's largely been a result of the Florida market. The demographics there will be different from those in other parts of the country, and Florida doesn't have a legal recreational market, either. Seeing how well Trulieve does in states where cannabis is fully legal (like Massachusetts or California) could reveal more about its products' competitiveness, since it would be participating on both the medical and recreational sides.

There's little doubt that Trulieve will continue growing just through expansion, but with so many other cannabis companies out there that aren't dependent on one state, it may need to do more to attract investors. A strong earnings report that shows the company is on track to hit its targets and demonstrates solid growth in other states could go a long way toward generating some much-needed bullishness around this pot stock.