Trulieve Earnings release and provided guidance for 2021:

• Guidance for 2021 incorporates a full year of operations from Trulieve’s Pennsylvania operations, continued growth in Florida as well as the Company’s Massachusetts, Connecticut, and California locations. Based on Trulieve’s markets, current regulations, and foreseeable store growth, the Company estimates 2021 revenues in the range of $815 million to $850 million, and $355 million to $375 million in adjusted EBITDA.

The guidance represents a Sales increase of +56% and EBITDA increase of +54% from F2020.

This is their Fiscal year end and they also made their biggest acquisitions ever in the Q4, buying their way into Pennsylvania.

PurePenn did come with $26 million in PPE (looks like they subsequently lease financed those assets) and $7.5 million in inventory, while Keystone came with $2.1 million PPE and $2.3 million in inventory. (Readers will notice the term “Inventory Step Up” in financials, earnings, and MDA.  When a company buys another the purchased inventory is marked up to selling price less selling cost.  This “step up” will be worked down as the purchased inventory is sold.  This will depress GM until it is sold through and cost-based inventory takes its place.)

Despite getting some PPE, the level of G/I to the PP is substantial and is a function of limited licenses in PA like in many other states.  The problem with G/I tied to limited licenses is it assumes limited licensing will always be in place.  Take Ontario’s retail store roll out as an example of the changes brought when licensing restrictions are lessened.  In 2019, Ontario awarded 25 initial retail licenses through a lottery system, with stores to be opened by April 2019. Those were 25 very coveted licenses as any new licenses were not yet scheduled to be released, and a second lottery followed for 50 stores in late 2019 (opened in 2020).

Those first 25 lottery winners were immediately approached by retail chains and investors.  I visited one of the stores in Hamilton in the summer of 2019 that got tied into HighTide.  It was one of the top stores in Ontario.  Great location in the middle of a substantial retail complex with ample parking.  The lottery winner gave HITI a purchase option in consideration for HITI funding and assisting with launch.  That purchase option was struck a year later at a value of $4.0 million, G/I was $4.6 million of the purchase price. Not bad for a $75 lottery ticket.

Fast forward and now Ontario is opening 40 stores a month. Competition has increased. Average sales per store in Ontario was $1.3 million/month in Jan/2020 and is now $0.2/million month in Jan/2021.   

Limited licenses are moats.  Removal of limits is the drawbridge that renders the moat less valuable.  Will HITI take a hit on the G/I? If revenue at that store drops, likely. HITI is opening up more stores in Ontario, but it certainly is not costing them $4 million per. The cover charge has dropped significantly.

As we have discussed in our thesis on the disruption that a 3-tier alcohol model would cause MSO’s it is important for investors to understand if the moat is really durable. 

As this is a year end, and TRUL did not give a standalone Q4 AND moved to US GAAP, I have had to recreate their Q4.  My Q4 is only $0.8 million out, which is pretty close to their figures.

Open up the fins and MDA and follow along. I note the MDA offers very little QoQ information.

Income Statement Drivers & Breakeven Sales: Trend

Trulieve operates in: Florida, Massachusetts, California, Connecticut and Pennsylvania, and are entering West Virginia.

Store count: 75 +14 QoQ, FLA 70 +11 QoQ, CA 1, CT 1, PA 3 +3 QoQ, 0 in Mass.

75 dispensaries opened versus 61 last Q and 52 the Q prior.  Average dispensary revenue was $2.5 million on the Q +3% to last Q.   

Sales are up 24% to $168 million after a 13% increase last Q with eleven more FLA dispensaries opened in the Q and 75 total across FLA, Connecticut, California, Pennsylvania and Massachusetts footprint.  The FLA market continues to grow and the addition of flower, and more recently edibles, has certainly propelled Trulieve well. 

Pennsylvania allows wholesale, so we will start seeing how TRUL does as a supplier.  I do note they now have an Account Receivable of $0.3 million on the balance sheet. That is a first.

Retail Revenue: Peer and Trend

TRUL does not break out wholesale yet, so we will keep it all in retail.

Interestingly they have $3 million more sales than CURA and they get there with 21 less dispensaries. Efficiency.

 Annualized Sales $ per (PPE + Goodwill/Intangibles)

What I have done above is annualize the last Q’s sales and divided it by the aggerate of PPE and G/I to see how much sales are being generated and what the trend is. I added PPE and G/I to try to normalize the companies that have gone an organic path (TRUL and CWEB until their new acquisition) versus the more acquisitive (Cura and GTII).

The second consecutive step back we have seen with Trulieve under this metrics at $1.40 versus $1.64 last Q. The addition of $135 million in G/I is the culprit.  We will see where this metric settles with a full Q of PA in the future.   This is the most efficient in peer group.   

Income Statement Drivers & Breakeven Sales: Peer

Trulieve is no longer the sales leader as CURA took that crown and GTII is now second.

Gross Margin

Gross Margin declines to 71% from a record high of 75%. Part of this is a $1 million step up in Q4, but without same they still dropped to 72%. 

Absolute GM is $120 million up from $102 million, fully due to sales increase.

They have removed not only the IFRS voodoo but also some CoGS reporting.  So, telling why they decreased is not possible.  It is likely more than just PA coming online as the PA sales number would not likely move the GM around too much.

Annualized Gross Margin $ per (PPE + Goodwill/Intangibles)

This is our attempt to normalize the companies growing organically from the roll ups.  We have annualized the gross margin and divided that by aggregate of PPE + G&I.

This metric did take a step backwards the past two quarters and QoQ from $1.23 to $1.00. The $135 million in PPE in the Q dampened the metric.

Gross Margin: US Peers

TRUL is at #1 spot. Being vertically integrated and with little wholesale is the differentiator.

Gross Margin: North American Peers

SGA & SBC: Trend

NOTE: I was unable to split Selling from G&A for Dec 2020 Q.

Combined G&A increased by $10 million in the Q and increased as % of sales to 28% +1% QoQ.  The eleven new stores and PA are likely the reason.

They have $0.6 million in SBC.  They also have Super Shares so SBC is not a huge factor.

Depreciation rounds out Opex at $4.0 million on the non-production assets flat QoQ.

Total Opex was $52 million at 31% of sales versus $42 million at 31% last Q.   

SGA & SBC: Peer

Trulieve is no longer the US leader in combined SGA and SBC as GTII is now less than them.   

Net Operating Profit Breakeven: US Peers

NOP under GAAP was $68 million versus NOP before IFRS voodoo of $60 million last Q.  The pick-up was the +$18 million in GM was offset by Opex increase of $10 million.

Other Income and Expenses: Total other expense of $38 million this Q versus $17 million last Q.

• Transaction costs of $4.7 million on PA versus nil previous Q
• Interest expense of $3.7 million versus $6.4 million QoQ
• Other expenses of $30 million versus an expense of $11 million last Q. Looks like that was warrant driven tied to appreciating stock price. “. As of December 10, 2020, the June Notes converted to equity as per ASC 815-40, at an expense of $25.5 million which is included in other (expense) income on the consolidated statement of operations and comprehensive income.”
• Income Taxes was $27 million versus $22 million last Q.

Net Income for the Q was $2 million versus IFRS voodoo adjusted $22 million last Q.

Net Operating Profit Breakeven: North American Peers

The leader by far on this measure.

EBITDA: Trend and Peer

They improved their Adj EBITDA by $8.4 million to $76.6 million on the quarter from $68 million last Q. An enviable figure.

Cash provided by

• Operating Activities was a Source of $26 million versus a Use $4 million last Q
• Investing Activities was a Use of $174 million versus $61 million last Q
• Financing Activities was a Source of $40 million versus $82 million last Q.

Net decrease in Cash was $47 million.

+EBITDA Breakeven: US Peers

The cost structure that comes with focusing largely on one state, coupled with their market dominance in FLA, allows Trulieve to be EBITDA positive at 36% of existing sales, a slide from 32% last Q.

+EBITDA Breakeven: North American Peers

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our new metric.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

Even after taxes and interest Trulieve shows a good absolute increase.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

As a percentage of sales, this metric back slid QoQ as Sales outpaced the cash generated.

Balance Sheet Items of Note:

Cash decreased by $47 million to $146 million.  Their ability to put cash in the bank quarterly from operations allows them to hold less of a cash balance than some of their peers.  They also have a better ability to add incremental debt.

Sales, Bio Assets, Inventory, WIP, FG:

Oh, what a change US GAAP has. Inventory value dropped $106 million as IFRS voodoo was stripped.

Based on Q CoGS they have 2.2 Q’s inventory on hand.

Waterfall: Peer

This is comparing apples and oranges given some are GAAP and some IFRS.  You can spot the US GAAP as they have no biological assets like GTII.  Trulieve does have more inventory than GTII despite less sales.

Not much worth noting as to deltas in the balance sheet other than

• the $14 million increase in PPE to $318 million
• +$65 million in right of use assets appear and corresponding leases in the liability section. 
• G/I increase +$135 million to $164 million from PA acquisitions
• Income tax payable is very low at $6 million.  They must be paying ahead of schedule.
• Warrant liability dropped to $0 from $23 million QoQ and warrant equity increased $35 million
• +$118 million in share capital from equity raise.

What we said last four Q: This is another very good Q operationally.  Increased sales.  Strong GM%.  SGA did creep modestly.  EBITDA growth continues.   Inventory is getting a tad high but not worrisome yet.  Cash is in a better position.

This Q:

Trulieve is a metronome.  They are a class ahead of their peers.  Now we will see if they can replicate Florida success in other markets.

GoBlue

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author does not have a position in TRUL and will not start one in the next five days.