The marijuana industry garnered a lot of investor attention last year when it continued to soar amid a global crisis as other sectors struggled to survive. The drug was considered an “essential item” in the United States and Canada during the lockdown, leading to increased sales. Sales are also on the rise this year and the wave of state legalization in the United States is the icing on the cake. American cannabis companies, in particular, have outperformed their Canadian counterparts. Of these, based in Florida Cannabis Trulieve (OTC: TCNNF) is a rising star that has recorded 13 straight quarters of stellar income and positive earnings before interest, taxes, depreciation and amortization (EBITDA) – a rare event for cannabis companies.
On May 10, this already strong contender in the US cannabis space upped his game by acquiring the Arizona-based company. Harvest health and recreation (OTC: HRVSF). The deal, valued at $ 2.1 billion, will give Trulieve a broad grip on the US cannabis market. Let’s take a look at three things in its first quarter 2021 earnings report, released on May 13, that make this exciting pot stock a solid buy now.
1. Trulieve’s revenue growth seems unstoppable
Trulieve is a classic example of how to strengthen your roots before you spread them. It has established a solid foundation in its home state of Florida with a total of 78 stores and approximately 2 million square feet of growing capacity in the state at the end of the first quarter (March 31). This has helped him support the growth of his income.
Florida only allows medical cannabis, while efforts are underway to legalize recreational cannabis. Trulieve has strengthened its medical cannabis position in other key markets, including California, Massachusetts and Connecticut. She is now preparing to make her mark with her recreational products. It launched a few high-margin cannabis derivatives – including gels, chocolates, cookies and brownies – for medical cannabis patients in Florida in the third quarter of 2020. The acquisition of Harvest Health will help it access even more interesting markets. In the first quarter, Trulieve’s revenue grew 102% year-over-year to $ 194 million.
2. It’s a profitable business
Positive EBITDA shows how well a company manages its operating expenses, while net profits are the profits of the company after all deductions. Trulieve managed to achieve both in the first quarter. Its Adjusted EBITDA was $ 91 million, up 87% from the previous year. Operating expenses increased to $ 57 million from $ 29 million in the first quarter of 2020, due to spending on continued expansion. However, the increase in revenues was enough to generate positive EBITDA in the quarter.
Additionally, higher revenues and consistent positive EBITDA also contributed to a 27% year-over-year increase in net earnings to $ 30 million for the quarter.
While keeping costs low, the company has managed to keep its balance sheet stable. It ended its first quarter with cash and cash equivalents of $ 162 million and total assets outstanding of $ 86 million.
The company is in a good financial position to settle its debts while increasing its revenues and profits through continued expansion. In the first quarter earnings call, management said they expect operating expenses to increase in 2021 as they continue to expand into new markets, but are confident that it will not reduce income growth.
3. Its acquisition of Harvest Health is a wise move
The acquisition of Harvest Health by Trulieve is subject to shareholder approval in the third quarter. This deal will give it a head start in Arizona, which recently legalized recreational cannabis. Harvest will also add dispensaries in Pennsylvania and Maryland to Trulieve’s national footprint. With help from Harvest, the merged company will gain access to a thriving marijuana market in the Northeast, Southeast and Southwest regions.
Harvest Health recorded an exceptional first quarter with $ 88.8 million in revenues and adjusted EBITDA of $ 26.9 million. With access to 126 dispensaries in 11 states, Trulieve expects the combined company to generate approximately $ 1.2 billion in revenue and $ 461 million in adjusted EBITDA in 2021. A merger between two strong companies will allow to take advantage of each other’s efficiency gains – such as scale of operations, growth strategies, the addition of innovative products and brands, and greater capacity to grow to generate more revenue and profit. Trulieve alone works wonders, and the addition of Harvest should help Trulieve become a true cannabis powerhouse in the United States.
For the full year, Trulieve expects revenue to be between $ 815 million and $ 850 million and adjusted EBITDA between $ 355 million and $ 375 million. Please note that these indications exclude the impact of the Harvest acquisition transaction.
No reason to ignore this pot stock!
Trulieve Cannabis was already my first choice in the global cannabis space even before making its strategic move to acquire Harvest Health. The company is smart with its growth strategies. It took this bold step when it is already profitable and strong instead of embarking on a spending spree in the early stages of its development like its Canadian counterpart. Aurora Cannabis did, putting the latter company in a difficult financial position.
Marijuana sales could bring about $ 92 billion in 2021 and up to $ 160 billion in 2025 to the U.S. economy, according to Marijuana Business Daily. I have no doubt that this combined company will be able to capture part of this market with booming revenue and profit soon. I see no reason to avoid this jar stock. Even though Trulieve’s stock has seen triple-digit gains over the past 12 months, its growth is unlikely to slow down anytime soon. I believe its continued outstanding performance, likely federal legalization (over the next several years), and the benefits of the Harvest acquisition will bring fruitful returns in the long run.
Stellar consistent income and profits, a strong balance sheet, a strong partner in Harvest Health, and an expanding national footprint are all strong arguments for investing in this marijuana stock now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.