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Is Trulieve a Steal of a Deal After Falling 50% From Its 52-Week High?

By David Jagielski – Updated Sep 1, 2021 at 4:31PM

Key Points

  • Investors have been moving away from growth stocks in recent months, and marijuana has been no exception.
  • Legal problems for the CEO's husband have also weighed on this pot stock.
  • The stock is a cheaper buy than many of its peers, but is it still too risky an investment right now?

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A combination of negative press and weakness in marijuana stocks as a whole has brought the stock to levels unseen since November 2020.

Trulieve Cannabis (TCNNF 0.19%) is one of the top cannabis producers in the world. And once its deal with multi-state marijuana operator Harvest Health & Recreation eventually goes through, it could even be the industry leader in terms of revenue. It will have a strong presence in both Arizona and Florida, while also penetrating new markets that should help further diversify and add to its top line.

But despite all that optimism, investors have been incredibly bearish on the stock. In just the past six months, its shares have fallen more than 41%, while the Horizons Marijuana Life Sciences ETF has declined by 31%. Is now the time to load up on this marijuana stock, or are there some valid worries that should keep investors away from Trulieve?

A person using a microscope in a greenhouse.

Image source: Getty Images.

Why is the stock struggling?

There isn't an overwhelming reason why marijuana stocks in general would be falling as heavily as they have been. That said, growth stocks overall have been struggling -- Cathie Wood's ARK Innovation ETF has fallen more than 6% in six months, while the S&P 500 has risen 18%. And a lot of that may have to do with inflated valuations.

Cannabis investors may have also been expecting more progress when it comes to marijuana reform. In January, the CEO of Canadian marijuana producer Canopy Growth said he expected to be operating in the U.S. within 12 months, a target that right now looks to be even more of a pipe dream than it was when he first made that overly optimistic projection. Although U.S. Senate Majority Leader Chuck Schumer has introduced draft legislation that could lead to the federal legalization of marijuana, there's little reason to expect that will happen before the end of the year.

Another reason Trulieve has been struggling of late is that J.T. Burnette, the husband of CEO Kim Rivers, was convicted on public corruption charges in August. Although Trulieve has stated that the company is not involved in these legal issues, shares of the pot stock still fell more than 6% the day after the news hit as trading volumes hit more than 1.2 million -- their highest in more than a year.

With the company-specific bad press and softness in growth stocks of late, Trulieve's stock is now trading at around half its 52-week high of $53.73, which it hit on March 18.

How cheap is Trulieve right now?

Here's how Trulieve compares to some of its peers when looking at price-to-sales (P/S):

Chart showing Trulieve's PS ratio  compared to other cannabis stocks.

TCNNF PS Ratio data by YCharts

Once its acquisition of Harvest Health goes through (the timeline on that remains vague), Trulieve will be an even cheaper buy given Harvest Health's even lower P/S ratio. Trulieve is also outshining its peers by generating some impressive and consistent profits. When it released its latest quarterly results for the period ending June 30, the company recorded a profit for the 14th consecutive quarter.

Its adjusted earnings before interest, taxes, depreciation, and amortization (EBTIDA) of $94.9 million was more than 44% of the $215.1 million it recorded in revenue. Curaleaf Holdings, the top marijuana producer in the U.S., generated more revenue for the same period ($312.2 million), and recorded adjusted EBITDA of $84.4 million -- just 27% of its top line.

Should you invest in Trulieve today?

Trulieve is trading at a discount to many of its peers, as investors are likely worried about whether the legal troubles involving Burnette will spill over into problems for the company. However, at this point, there's no reason to expect that will be the case.

Negative press can weigh down a stock, and if the concerns are unfounded (which it looks like they are in this situation), it can create a buying opportunity for investors to take advantage of a low-priced stock. If you're bullish on Trulieve, now may certainly be a good time to buy shares of the company.

The reason I would still avoid the company has nothing to do with the negative press, but instead stems from my concerns about Trulieve being able to replicate its success in other markets given that 90% of its dispensaries are still based in its home state -- Florida. 

The marijuana stock is a cheap buy, but I wouldn't go so far as to say that it is a steal of a deal just yet. As competition ramps up in the Florida market, its dominance there may erode over time and lead to less impressive results.

The next 12 months could prove pivotal to the company, with investors expecting to see results from the new markets it has entered, including Massachusetts. And until Trulieve can show that it can do well in other states (beyond just Arizona, in which it's almost guaranteed to benefit thanks to the Harvest Health acquisition), I wouldn't consider investing in it just yet.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cresco Labs Inc., Green Thumb Industries, and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

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