To be a cannabis investor, you must have a long-term view. Cannabis stocks have been hammered this year, though the story is the same for all growth stocks. Usually, growth stocks take time to price in the company's fundamentals. As more states continue to open their markets by making medical and recreational cannabis legal, more expansion opportunities will arise for these operators.
Besides patience, marijuana investors also need a strong risk appetite. You should carefully choose pot stocks that have been consistently growing revenue while keeping their balance sheet strong. And a solid choice right now is Florida-based multi-state operator (MSO) Trulieve Cannabis (TCNNF -0.10%). Let's dig into why.
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Trulieve played it smart with its expansion strategies
Trulieve Cannabis dominates its home-state market with 114 Florida stores (and four more upcoming this year). At one point, investors believed Trulieve made a mistake by focusing only on Florida, but this strategy worked out hugely in its favor. Instead of expanding just anywhere, it worked on strengthening its roots first. This strategy could also prove useful if the state legalizes recreational marijuana in the future.
Trulieve has now expanded to 11 states with a total of 165 marijuana retail dispensaries. This is probably the reason its operating profits have been consistent for 15 consecutive quarters. In its recent first quarter, adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at $105 million, a 16% surge from the prior-year period.
A revenue surge of 64% year over year to $318 million boosted this performance. Trulieve also managed to surpass peer Curaleaf Holdings in terms of revenue in Q1. Curaleaf has been the largest MSO with the highest revenue for a while now. It operates 133 dispensaries and reported revenue of $313 million in Q1.
Amid this growth, Trulieve also noted a net loss of $32 million compared to a net income of $30 million in the year-ago quarter. But much of that is associated with its purchase of Harvest Health & Recreation last year. This acquisition solidified its presence in Arizona, Pennsylvania, and Maryland cannabis markets. Trulieve ended the quarter with a positive cash flow from operations of $45.1 million and a cash balance of $267 million fueling its expansion plans this year.
There is more room to run
Besides Florida, two other key markets drive Trulieve's growth. It operates 17 dispensaries in Arizona and 20 in Pennsylvania. Arizona legalized recreational cannabis in 2021 and its first year of legal cannabis sales totaled $528 million. Only medical cannabis is allowed in Pennsylvania now, but efforts are ongoing to legalize it for recreational use.
Most cannabis growers saw a mellow start to the year with supply chain constraints, rising inflation pressures, and other headwinds slowing down cannabis sales. However, Trulieve's management reiterated its 2022 guidance expecting another year of solid growth. Revenue could land in the range of $1.3 billion to $1.4 billion, and EBITDA could be in the range of $450 million to $500 million. This could be an impressive growth from revenue of $938.4 million and adjusted EBITDA of $384.6 million last year.
The Harvest Health acquisition could prove rewarding once it comes to fruition. If and when federal legalization happens, financially sound cannabis players will benefit the most. With such a stronghold, Trulieve is poised to grow exponentially once the national market widens.
TCNNF PS Ratio data by YCharts
Trulieve's stock price has a monstrous upside of 355% over the next 12 months, based on consensus expectations of five Wall Street analysts. The stock is cheap now, trading at a price-to-sales ratio of two. Hovering around 66% below its 52-week high, this pot stock is a long-term risk worth taking.
