A lot of the air has been let out of the marijuana market's balloon since the heady, early days of the Canadian green rush. The legalization of cannabis in Canada failed to supercharge growth in the way that was expected, and the patchwork, state-by-state efforts in the U.S. still leave pot producers caught up in a limbo of regulation and taxation that undermines their potential.
Yet one marijuana company still rises to the top despite the proliferation of competitors, and Trulieve Cannabis (TCNNF 3.85%) remains one of the best-performing pot stocks on the market, even after seeing its own valuation cut by a third from the all-time high hit in March.
An investor who put $1,000 into Trulieve's reverse merger in 2018 would be doing quite well today, especially in comparison with other pot stocks available at the time. Let's see why the vertically integrated "seed to sale" medical marijuana company was such a good investment, and if it remains so today.
A budding giant
Trulieve is the largest multistate operator (MSO) in Florida, with 105 operating marijuana dispensaries. By blanketing the Sunshine State with a retail presence, it has helped the company effectively build its brand by leveraging its marketing budget.
Having achieved economies of scale in one state, Trulieve is now using that dominant position to replicate its growth trajectory in other states and has a presence in 11 states. As of Oct. 1, it had almost 150 operating dispensaries.
What makes Trulieve different is that it's a profitable MSO and has been operating in the black for 14 consecutive quarters. And following its acquisition of Harvest Health & Recreation, an MSO in Arizona -- a potential $1 billion cannabis market all its own -- Trulieve is now the largest and most profitable MSO on the market.
In the second quarter, Trulieve had combined revenue of $318 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $123 million, the most for any U.S. MSO.
Smoking the competition
It's easy to see why Trulieve is doing so well. By targeting its initial growth phase, it created a dominant presence in Florida, where it has a 28% share based on the number of retail dispensaries and a 50% share of the dried-flower market.
It notes that 95% of the nearly 620,000 registered medical marijuana patients in the state have visited a Trulieve dispensary, giving it incredible mindshare among the population.
It will next be moving into nearby Georgia, where it was just granted one of two Class 1 productions licenses for a 100,000-square-foot production facility. It will also be allowed to operate five retail stores.
By operating in states that limit the number of licenses available to be issued, Trulieve's competition will be limited, though rivals such as Curaleaf, which lost out to Trulieve, are protesting the awards, and that may delay expansion. The only other competitor granted a Class 1 license is a company called Botanical Sciences. Should the award stand the challenge, Trulieve could become the dominant MSO in the Peach State as well.
Risks do exist
Trulieve does have some headwinds that have held it back from reaching its full potential, most notably the conviction on fraud and bribery charges of the MSO's founder's husband. Although the charges were unrelated to Trulieve's business, that cloud has hung over Trulieve since it went public, and it could hinder the MSO's ability to garner additional licenses in other states it wants to expand into.
How much is that worth?
Despite that, Trulieve has still been a winning stock for investors. How much so? If an investor had put $1,000 into the medical marijuana stock when it went public in September, 2018 at $7.50 per share, he would have $3,975 today, a nearly fourfold increase in a little more than three years.
That's a compounded annual growth rate of over 58%, but with Wall Street still having high hopes for the MSO and setting a price target of $79 per share on Trulieve's stock over the next year, that suggests there is still 174% upside to its stock. That looks like a new green rush in the making.