Analyst: Trulieve's Harvest Merger Wouldn't Have Been Cantor's 'First Choice' But It Brings More Value Than Just Assets

Trulieve Cannabis Corp. TRUL TCNNF announced Monday it will buy Harvest Health & Recreation Inc. HARV HRVSF for a whopping $2.1 billion in an all-stock deal.

Under the merger agreement, Harvest shareholders will acquire 0.1170 of subordinate voting shares of Trulieve for each Harvest share priced at $4.79. Upon completing the merger, Harvest shareholders should hold roughly 26.7% of Trulieve’s issued and outstanding pro forma shares (on a fully diluted basis).

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept an ‘Overweight’ rating on Trulieve’s stock but lowered the price target to $76 from $89.

The Thesis

Changes to the price target were necessary in response to the new merger and increased share count to 181 million, explained Zaunic in a Monday note.

As the company begins to look more like a real multi-state operator, instead of a single-state operator (per estimates, Florida accounted for more than 90% of Trulieve’s sales last year), the analyst says “the stock should rerate.”

Although Harvest wouldn’t have been their first choice, Zuanic said that they are aware that via the merger, Trulieve will obtain #1 status in Arizona, get close to being #1 in Pennsylvania and further advance its outreach across Florida.

And while it could be argued that another approach, such as asset collection, would be less expansive, and that reaching other key states such as New Jersey and New York could bring more benefits in the long term, Zuanic confirms that Harvest “is a fully-fledged operation with intrinsic value beyond just assets.”

Trulieve should continue its expansion via mergers and acquisitions as well as find ways to reach important markets like New Jersey and New York, the analyst added.

The Florida-based cannabis company is scheduled to report its first-quarter earnings this Thursday, after which Zuanic plans to update Cantor Fitzgerald's model to proforma terms.

The Price Action

Trulieve’s shares were trading 3.37% lower at $37.31 per share at the time of writing.

Photo by Esteban Lopez on Unsplash