Is Trulieve Still A Top Pick Ahead of $2B Harvest Health Merger?

Over the past year, Trulieve Cannabis Corp. TRUL TCNNF has significantly expanded its nationwide footprint, as evidenced by its recent milestone of opening its 99th and 100th cannabis dispensaries.

And, apart from being the leading medical cannabis company in the state of Florida, Trulieve has been ramping up its operations in Massachusetts, Connecticut, California, Pennsylvania, and West Virginia – all ahead of the big merger with Harvest Health & Recreation Inc. HARV HRVSF  - the $2.1 billion deal expected to close in the fourth quarter of 2021.

The Analyst

Trulieve is still among the top picks of Cantor Fitzgerald's Pablo Zuanic, who maintains an

Overweight rating on the company's stock is also increasing its price target to $81 from $50.50 in his latest note.

"We start to roll out a less-market, sentiment-sensitive methodology for our top picks," Zuanic explained.

The Thesis

Zuanic expects that the company will protect the market share in Florida, its home state, despite changes in consumers' spending patterns now that there's more dining out and travel, and a tight labor market that in some cases has slowed the supply chain.

Nevertheless, Zuanic said he thinks Trulieve will benefit from the new processing center in Tampa and new assets in Massachusetts and Pennsylvania.

In April, the company acquired three Pennsylvania-based Keystone Shops' medical marijuana dispensaries in Philadelphia, Devon and King of Prussia for $60 million, ahead of purchasing a Worcester, Massachusetts-based dispensary from Nature's Remedy of Massachusetts, Inc., for $13.5 million, boosting its footprint to two shops in the Bay State at the time.

Furthermore, the closing of the deal with Harvest and "federal reform tailwinds," including a measure that would allow banks to do business with cannabis companies without being penalized by federal regulators, approved by the U.S. House of Representatives on Tuesday in a voice vote, "should help the stock in the coming weeks," Zuanic said.

The analyst expects the company to issue 2022 guidance that will be "well-above FactSet consensus" once the merger with Harvest Health is wrapped up.

"We have increased our price target as we now factor in cumulative five-year EBITDA plus an annuity year five, blended with the premium/discount method (to account for market sentiment and sector multiples) we use for our Neutral-rated stocks," the analyst explained.

Price Action

Trulieve's shares traded 7.45% higher at $28.30 per share at the time of writing Wednesday.

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