Trulieve Cannabis Stock Analysis

Trulieve is a vertically integrated cannabis producer, this means that they cultivate cannabis and also sell it in their own retail stores. The company calls this “seed-to-sale” integration. They’re primarily a server of the Florida medical marijuana market, with a sizable portion of their revenue coming from the smokable flower.

They’re one of the only profitable publicly traded cannabis firms.

Not Cash-Starved

When analyzing the cash flow statements of cannabis companies, it’s customary to see cash outflows from operations and investing activities, and huge inflows from financing activities. Companies that have cash-burning operations and are utilizing capital markets to raise capital through offerings, heavily diluting their existing shareholders in the process. This is pretty much general practice in early-stage industries like cannabis.

With this in mind, calculating the cash burn rate of these companies is vitally important. As a potential shareholder, it’s good to know when potential dilution is coming. The quicker the burn, the quicker and heavier the dilution will be. Trulieve might be a diamond in the when it comes to this though.

Trulieve generated positive cash flow from operations for the 2018 fiscal year and the six month period ending on June 30th, 2019. This is significant as it will enable the company to become self-sufficient and less reliant on capital markets, which means less shareholder dilution.

Liquid

The company isn’t currently suffering from any liquidity problems either. They currently have a current ratio of 3, which means their current assets outweigh their current liabilities 3:1. In the event that all of their current liabilities are called due, they’ll be able to cover the costs with their current assets.

Stock Has Taken a Beating

As a prospective shareholder, this is a good sign. For current shareholders, not so much. Trulieve’s stock, along with the rest of the cannabis industry has been in a bear market since April 2019.

The company has been trading near its Winter 2018 lows for some time but has recently begun to recover, breaking out of its base. The daily chart shows signs of a possible trend reversal with the stock breaching the 50-day moving average. Friday’s session ended with a doji candle right around the stock’s most recent swing high. Monday’s price action should be interesting.

Market Leader in Florida Medical Cannabis

According to the company’s most recent investor deck, they currently have 31 brick-and-mortar stores throughout Florida, serving the state’s medical cannabis market, planning to have 44 by the end of the fiscal year 2019.

They have over 203,000 unique customers, with an average of two “visits” per customer, per month. As much as 6% of their purchases are deliveries, done by the company fleet which boasts 75 vehicles. Additionally, they project at least 20% of their sales will come from their e-commerce store in the fiscal year 2019.

Cheap Relative to Cannabis Industry

The company’s trailing price/earnings ratio is sitting at just 13.4, making it cheaper than the S&P 500. With earnings growing by multiples over the last year alone, this makes it quite cheap on an earnings basis.

Relative Strength to Cannabis Industry

Using the ETFMG Alternative Harvest ETF (MJ) as an index for the industry, Trulieve has not only outperformed on an absolute basis since it’s IPO, but it’s weathered the recent bear market better as well.

 

Relative strength is one of the key tenants of William O’Neil’s CANSLIM strategy.

Final Thoughts

The cannabis industry has been in a freefall since April 2019. The most significant factor at play has been the outbreak of vaping-related illnesses. While not inexorably linked to cannabis, vaping has been one of the most popular methods of consuming cannabis. What’s worse, is that most reports seem to point to THC oil-based vaping devices as the culprit in the vast majority of cases.

In my mind, if you were a cannabis bull before these vaping illnesses, you should be a bigger bull at these prices. Vaping isn’t fundamental to cannabis consumption.