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Where Will Trulieve Cannabis Be in 10 Years?

By Sushree Mohanty – Oct 28, 2021 at 7:32AM

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Look forward to exceptional growth from this pot stock.

The cannabis industry is evolving as more states gradually legalize marijuana, either for medical or recreational use, and there's a long runway for growth ahead. Additionally, with marijuana legalization at the federal level a distinct possibility, you may not want to regret why you didn't invest in some exciting pot stocks ahead of the industry's growth curve. An outstanding option to take advantage of that growth right now is Trulieve Cannabis (TCNNF -0.68%).

The Florida-based medical cannabis company started operations by focusing only on its home state, while most competitors chose to expand via the acquisitions route. But this strategy ensured that Trulieve would eventually end up as one of the top contenders in the cannabis space. In fact, when the company eventually acquired the Arizona-based Harvest Health & Recreation, it turned out to be the largest U.S. cannabis transaction, and created a highly profitable multi-state operator (MSO) in the country.  At the given rate of Trulieve's growth, I see a very bright future. Let's take a look at how it has done so far this year and what we can expect 10 years down the line.

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Image source: Getty Images.

Focusing on the roots was a good move

Trulieve's complete devotion to Florida worked in its favor. The company is dominating the state with a total of 102 stores, which now includes the rebranding of Harvest Health stores (more on this later). Without the distractions of operating in multiple states early on, Trulieve could remain focused on its core offerings, and that helped its revenue and profits to keep growing.

In its second-quarter ended June 30, total revenue grew 78% year over year to $215 million. Consistent revenue growth drew in positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of $95 million, a 55% jump from the prior-year quarter. Net profits of $41 million, a 116% year-over-year increase, also marked the company's 14th consecutive quarter of profitability. This is impressive considering how Trulieve's Canadian counterparts, Canopy Growth and Aurora Cannabis, are struggling to achieve positive EBITDA.

Time to go all-in

Investors were worried that Trulieve's sole focus on the medical cannabis market might put it behind peers as the recreational market is booming now. Estimates show that U.S. recreational cannabis market sales could reach about $42 billion by 2026. Most of Trulieve's competitors have already advanced in this segment. Keeping this in mind, the company has now introduced a few varieties of derivatives for its medical cannabis customers in Florida. It launched a few high-margin cannabis derivatives -- including gels, chocolates, cookies, and brownies -- in its third quarter of 2020.

Even though focusing on Florida was a good move, recreational cannabis legalization in the state is still a long shot away. (Efforts are ongoing in the state to legalize recreational cannabis.) It is safe to say Trulieve is poised to take advantage in Florida when legalization does happen. Still, it might miss out on opportunities in new upcoming markets such as New York and New Jersey, where both medical and recreational marijuana are already legal, unless it expands there soon. Trulieve does not have any stores in these states yet.

That said, its acquisition of Harvest Health is a smart strategy because it gives the company access to markets in Arizona, Pennsylvania, and Maryland. On Oct. 1, the company completed the acquisition and now has a total store count of 140, and 3 million square feet of cultivation capacity in the U.S. It has begun the rebranding process of Harvest stores.

With Trulieve in a stable financial position and already profitable, it shouldn't be hard for it to go aggressive with expansion and new product launches. It ended its second quarter with cash and cash equivalents of $289 million, and net debt of $118 million.

We should see more about its growth strategies when the company reports its third-quarter 2021 results on Nov. 15.

A shiny future for this pot stock

Looking at its $409 million revenue recorded for the six months ended June 30, I won't be surprised if Trulieve crosses $1 billion in sales for the full year. Note that this revenue estimate doesn't include sales derived via Harvest Health.

With a wider national footprint post-acquisition, management expects to see about $1.2 billion in revenue and $461 million in adjusted EBITDA in 2021 from the combined entity. As more states legalize marijuana, a strong company like Trulieve should be able to keep powering through. Ten years down the line (when federal legalization seems inevitable), I could see Trulieve as the top cannabis company in the U.S. It doesn't have an international presence yet, but looking at its exponential growth, I could see that happening as well in a decade. 

Since it began trading in August 2019, Trulieve's shares have gained a whopping 158%, compared to the S&P 500's growth of 58%. Analysts expect a 131% upside for Trulieve's stock in the next 12 months, which I believe is possible at the rate the company is growing. The company is trading 50% below its 52-week high now, making it the right time to grab this exciting pot stock.

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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