Multistate marijuana producer Trulieve Cannabis (TCNNF -6.26%) reported its fourth-quarter earnings last month for the period ending Dec. 31. The company's sales were up year over year, and the business made progress on multiple fronts, including diversifying its operations. But just how strong are the company's financials, and do they make the stock a buy?
Rather than sifting through the earnings report to find out, you can rely on the following five visuals, which help summarize the company's recent performance:
Image source: Getty Images.
Revenue declined from the previous period when including Harvest Health
Trulieve's acquisition of marijuana company Harvest Health closed on Oct. 1, 2021, so this last quarter was the first to include results from that business. While the combination saw revenue climb versus Trulieve's standalone third quarter, to $305.3 million, it was lower than the combined third-quarter revenue of $316 million.
Source: Company filings. Chart by author.
Due to oversupply issues, many cannabis companies have been struggling to generate strong quarter-over-quarter growth numbers. And it's important to note that while Trulieve might want to highlight the 36% sequential growth it achieved in the fourth quarter, it's essential to put that into context and remind investors that when including Harvest Health into the previous quarter's numbers, the results look far less impressive.
Gross margin also declined
In the fourth quarter, Trulieve reported less gross profit despite getting a boost in revenue from the Harvest Health acquisition. At $132.4 million, it was less than the $153.9 million that Trulieve generated on its own for the period ending Sept. 30, 2021. A big part of the drop is likely due to the broader business it now has, and where margins might not be as strong as they are in Florida, which is now a smaller chunk of its operations.
Source: Company filings. Chart by author.
Expenses surged as a result of the acquisition
Anytime a transaction closes, there will be redundancies that the acquiring company will need to address and hopefully eliminate. In the fourth quarter, Trulieve's operating expenses soared 169% year over year -- double what its top line rose by (81%). And that contributed to a 96% reduction in adjusted net income, which barely stayed positive at $1.8 million.
Source: Company filings. Chart by author.
This is an area investors will want to keep a close eye on as an uptick in expenses could make the business less profitable, and hence, a less appealing investment to hold.
Adjusted EBITDA only showed a modest improvement
As with gross margins, Trulieve's margins with respect to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also declined. At $100.9 million, adjusted EBITDA was now 33% of revenue versus 44% a quarter ago. The decline ties back to the company's shrinking gross margins and its rising operating expenses.
Source: Company filings. Chart by author.
The most growth came in the number of dispensaries added
Unsurprisingly, Trulieve added a significant number of dispensaries during its most recent quarter: 58, most of which via its acquisition of Harvest Health. The company now has an industry-leading 162 dispensaries as of the release of its latest results.
Source: Company filings. Chart by author.
More dispensaries will diversify the business, but as investors have already noted thus far, it will also create more expenses.
Is Trulieve a buy?
Trulieve is an industry leader, and although its margins have taken a bit of a hit this past quarter, it's still a top cannabis company to invest in. Moreover, those margins likely weren't sustainable over the long term as Trulieve diversified outside of Florida.
With the pot stock down more than 52% in the past year -- which is slightly better than the Horizons Marijuana Life Sciences ETF decline of 55% -- its troubles have more to do with the market's perception of the industry than the company's own operations. Nevertheless, buying the stock now and holding it for years could set investors up for some impressive returns, especially with the legalization of marijuana a distinct possibility in the not-too-distant future.
