It’s been awhile since I’ve run a Structure on Trulieve ($TRUL), last was on the third quarter of their fiscal 2020.

From a capital standpoint, they don’t have a lot of moving parts. Sure, there’s Super (SVS) and Multiple (MVS) shares in their structure – and thats not exactly an outlier as MSOs go. I did note that $TRUL prefers ‘fixed’ finance costs, with optionality remaining in-house, and not for external consumption. Hey – do numbers like theirs…you too can shop around for terms.

As noted last time, they’d stayed in their lane and were doing extremely well on home turf.

Another set of operations were installed as moves into PENN were made last fall, and a truckload of them was ordered 10 days ago via $TRUL’s acquisition of Harvest Health ($HARV). GoBlue’s handy and fulsome ‘Quarter’s in Pictures’ provides subscribers with detailed operational information. His latest on their 4th quarter noted the build/integration that’s incoming. I share his curiosity about how adroit $TRUL will be in execution – and moreso – whether $TRUL’s able to lever their ‘formula’ into $HARV’s operations…..and enhance those assets further.

$TRUL’s annual information form came out on March 23rd, and we’ll see if it has anything to add concerning their capital structure.

No time like the present.

To the financials!

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• Man, these statements come in at 19 pages. Somebody hand me a cold cloth…..I feel faint, and discovered genuine happiness can be found in the length of financial statements.
• $TRUL’s been active: $20MM a pop for three more dispensaries near Philadelphia; hit the market for a net $220MM cash in exchange for shares (~=5% cash fee of $9MM); moved into West Virginia….by buying permits for cultivation and 5 dispensaries for ~=$6MM; and of course, the $HARV takeout.
• Warrant exercise has been relatively muted – even during the run. 2019 saw some ~=25% of aggregate o/s struck, 2020 saw 113k of them exercised. The remaining amount – all founders – is some 6MM at a $6 strike expiring within 6 months…..they ran the full track and did well by it given a steady state share price from here.
• At current share price, that’s $250MM in equity for $36MM
• And….no more Super shares. As of March 21st, their articles forced the swap of these into MVS automatically. MVS outstanding? 564k, or about 56.4MM subordinate share equivalent (Note 12 (ii)). <I can’t get the math to add up, I see 617k in MVS. Not going to bother>
• The $HARV acquisition was called ‘Project Sunrise’ by $TRUL. In the master agreement, $HARV is to accelerate warrants previously issued. There’s some 18.1MM of them at $1.87, if $HARV’s price is above $4.97 for 10 trading days (yep), $HARV will need to collapse them.
• Since they’ve been in the money since last October, $TRUL is simply making $HARV do its’ housework before they take the keys. This would have been priced into the share ratio.
• All $HARV’s remaining warrants and MVS warrants and options et al are being converted at the ratio too (natch). The $HARV purchase agreement is a bear, all 165 pages of it.
• We do find out that the share ratio to be paid will change if $HARV needs to refinance at any point until close. The bid will get cut in half in a worst case scenario (and more than likely, an extremely remote one). Section ‘I’ covers it, and it is dense.
• Mention again in their AIF regarding status of being an ’emerging growth’ company, and thus have exclusions in having shareholders vote on executive compensation/golden parachutes. This terminates at 5 years of operations, or, if affiliates hold more than $700MM in subordinated shares ($TRUL reports that value to be $529,060,320.62 as of June 30, 2020 :))

Ok. I’ve spent several hours in both the AIF and $HARV agreement, I don’t see much inordinate. The deal definitely reads as $TRUL pitching and $HARV catching.

Nothing much more than we haven’t covered. Their financials are brusque, and disclosure perfunctory (that’s a good here). They lay out the reality of overhang in their AIF – $TRUL has professional advisors. Given the money involved, it’d be a surprise if they didn’t:

Their reported earnings per share is a rocking $0.25 – based upon their calculation of share count:

That fully diluted number includes a subordinated share base of only 63.6MM shares. There’ll be another 47.4MM birthed from the $HARV buy, leaving a total of 112MM subordinates outstanding, and 56.4MM in the closet:

With $HARV’s asset addition, this all could be characterized as ‘improving the capital structure’, and strictly speaking, it’d be correct.

Nothing much more to say. $TRUL’s moving into a different sphere – one of assuming operations instead of building them behind their safely walled fortress. It’ll take a year, but we’ll get to see if there is any synergies to unlock in corporate, and if their business model success translates into other jurisdictions. Anything they take on now will probably put a dent in existing margin – but certainly expand their footprint and sales.

Curaleaf ($CURA) Chairman Boris Jordan took a shot at $TRUL about $CURA’s cost of entry to $HARV’s markets being much cheaper. Not sure how much cheaper paper can be, but he alluded to a (big) upcoming $CURA announcement while doing so….which….turned out to be an outdoor grow entry while dropping in the word strategic ‘interstate’. Take that Kim! <Note Boris’ relative silence about $GTII, far and away a closer analogue to $CURA. Funny enough, Boris apparently didn’t care a whit about $TRUL or $GTII 6 months ago. Hell, they weren’t even competitors then.>

Anyhow, I’m looking forward to $TRUL’s next few quarters, and once they begin digesting $HARV. With the Fortress Florida engine running….they’ve got more runway than anyone right now. And probably the most to lose if 3-Tier/DCC actually becomes a ‘thing’.

Until next time.

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 holds no position in $TRUL or $CURA.