Should You Buy Trulieve Stock Before Its $2.1B Merger?

Over the last three months, Trulieve TCNNF shares lost 32%, compared to a 19% drop in AdvisorShares Trust AdvisorShares Pure US Cannabis ETF MSOS.

Last week, the cannabis company revealed it had launched a pilot program to sell its premium-quality cannabis clones at its Northampton, Massachusetts-based company. The move comes ahead of its previously announced 2.1 billion merger with Harvest Health & Recreation Inc. (OTCQX: HRVSF). 

On Tuesday, Trulieve CEO Kim Rivers purchased around 3,500 more shares for roughly $98 000. As a result of both transactions, Rivers now owns 81,429 shares of Trulieve, revealing her confidence in the company’s future. 

The Analyst

Cantor Fitzgerald’s analyst Pablo Zuanic reiterated an ‘Overweight’ rating on Trulieve’s stock with a price target of $50.50.

The Thesis 

After a video call between Cantor and Trulieve CEO Rivers, Zuanic’s confidence regarding specific moves increased, he said. Those activities include 1) benefits from the Harvest deal; 2) the fact that the merged company will be the biggest multi-state operator across many metrics, such as revenue, EBITDA, profit margins, etc., and 3) the company is prepared

to act upon potential state and/or federal-level changes in cannabis legalization. 

“We think the recent pullback in the MSO group and in Trulieve shares provides an opportunity for medium/long-term minded investors,” Zuanic said, adding that while being selective, the stock “remains a top pick for us.”

As the company’s potential catalysts, the analyst highlighted – 1) Harvest deal and 2) Pro-forma financial guidance to be presented for the combined company – pointing out that it is best not to wait until then to buy the stock. 

“We think that the benefits from increased stores/cultivation in Florida, new capacity in Pennsylvania/Massachusetts and the Keystone shops deal in Pennsylvania, should all contribute to growth in the second half of the year,” noted Zuanic, pointing out that investors who are too focused on near-term profit margins in Florida may “miss the point.”

Another reason to recommend the stock, Zuanic offered the view of “5pt CY22 EV/EBITDA difference between Trulieve and Curaleaf CURLF Green Thumb GTBIF (also, top picks for us).”

Price Action 

Trulieve’s shares were trading 0.30% lower at $26.50 per share at the time of writing Friday morning. 

Photo: Courtesy of Roberto Valdivia on Unsplash