In our last structure on Trulieve ($TRUL), we mused about the potential for them to lever off of Fortress Florida™ and expand via combination or acquisition, versus going it alone. After all, we’ve seen in several MSO’s that the national landscape is unique from state to state, and business development in multiple ones has shown to need a lot of capital.

While I’m half serious about a merger/combination ($TRUL is in good position, no need to negotiate down), their own expansion efforts haven’t been much to speak of so far. And any muse has been under the assumption that at some point, FLA’s expansion is going to eventually cap out, absent recreational opening.

And…in FLA, competition will be intensifying as other’s builds continue. Perhaps there’s much more market available, perhaps not, but $TRUL has shown the lead in capturing the largest share of them for several quarters now.

Volatility remains ever present: share price has varied from $8.50 – $14.00 since mid March(!).

Let’s see what’s happened in the final quarter of their financial year, and see if there’s been any notable happenings since last time.

To the financials!

___________________________________________

• Cash up to $90MM, sales in the quarter up $10MM QoQ,
• Inventory up a whopping $60MM even given those sales, it now stands at over $204MM.
• $114MM in debt, lease and tax liabilities making up the bulk of their long term liabilities. Manageable at this run rate, and they have been active in managing the leases via asset sale and negotiation.
• A curiosity from related party transactions, where the CEO and a former director lent money to $TRUL way back in May/June 2018. For 2 year money, the CEO got a 13% interest rate, while the director got 8%. Heck of a spread for deals done weeks apart. Immaterial, but notable to myself.

• Most of the goodwill/intangibles they have came from an entry into CONN, where they bought a licence for $20MM. In exchange, they got a liability for $2.5MM (yes, net assets were negative).
• The upshot is that licence generated some $8MM in revenue since the transaction closed. The downside is that net income on that was some $260k. Previous owners might have been milking it hard, or, cost structures/regulatory to operate there are onerous. Hard to tell which, probably means a little of both.
• Generally lean in corporate, which is good. Their full year of G&A looks to be around $14MM (contrast this with the $11MM $TGIF has). They do lump store staff and related costs in ‘Sales and Marketing’. I’ve put a picture of it up below.
• The ‘spouse’ of related party transactions has done a total of $47MM in revenue now this year, stated to be on a ‘cost-plus’ basis. While noted that all invoices are reviewed by general counsel, it’s a moist turd that any company has to even say that as a qualifier, and the whole relationship remains ghetto in a listed company. Government maybe, but not business in my opinion.
• Seriously, like the guy can’t find a gig that doesn’t involve his wife giving business to him? It was crap last financials, and it remains crap in these.
• A re-class (creation?) of SBC from the year prior saw G&A increase magically by $15MM, and thus previously reported net income from 2018 became $27MM. Ugly, and obviously missed by the same auditors that let is pass last year.
• Not exactly a ringing endorsement of the auditors (MNP) to myself. They must have yelled ‘do-over!’ before the ball hit the ground.
• Supers and multiples happily waiting for their day in the sun.

That’s enough for now. There is more errata, but nothing that jumps for the moment.

As to that ‘Sales and Marketing’ expense mentioned above:

Overall (and ignoring an extremely pregnant GoB) operations provided about $90MM in free cash flow. That’s pretty impressive given the landscape of the sector, and as standalone.

I’d like to give the reader a look into their California and Connecticut and Massachusetts operations….their 50k sqft extraction and edibles plant…..their cultivation profiles….but. They pull a $LABS level of disclosure around all of it, and with a company operating (to varying degrees) in multiple states with a quarter billion in annual revenues…..they give us:

To myself, the core of all risk in these financials is within the growing inventory numbers, and the capital structure.

For the latter, they have not been active in super/multiple conversions, which would onboard a whack of subordinates, nor do they have a sunset clause around them. They didn’t even claim any SBC in 2019…. yet (snicker). But their existing float of some 36MM subordinates can increase by 35% at the drop of a hat. While dilutive, the capital charge for it would be richter scale in comparison.

To the former, sales did increase by some 14% QoQ, but inventory is growing at a far faster rate. Perhaps there’s a cunning plan in here they aren’t telling anyone. WIP has doubled QoQ (from $80MM to $160MM), and even finished goods have increased by $10MM. Curiously, no ‘harvested cannabis’ (or raw materials) exists in this year end. Previous quarter had $17MM of it, now, nothing.

The $15MM in magical expenses that popped up from 2018 is swamped by the operations of the company now, and will likely be ignored. The restatement (in Note 2) is as ugly as this:

Fortress Florida is proving to be $TRUL’s house. They claim 50% of the flower market there to be their own, and apparently sell the shit out of everything else that can move. I’m sure these guys are the envy of several MSO’s for several reasons, as well as probably most Canadian outfits too.

For some observers, being a big fish in a small pond just won’t do. I suspect they’re hearing it as well, but unlike some other MSO’s, they have made only a couple of tentative steps^1 outside of the state, that I total to be around $35MM.

Look for something (anything) to be done with the inventory, and whether or not they have any kind of ambition to expand.

I can’t say much else, because aside from inventory, tax obligations, and some serious overhang in their capital structure, they look to be in pretty good shape operationally.

The preceding and following 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.

^1 – An aside here. That whole PT Mass asset (that $CURA’s CEO ‘Big Joe’ Lusardi bought 49% of for $36k – only to sell it for $46MM six months later to $CURA) was in total….around $3.8MM. It included a grow op and two dispensaries. Three months after ‘Big Joe’ made $45.65MM on the sale – $TRUL bought a cultivation and processing facility, and three dispensaries in Massachusetts for $4.4MM. As of writing, it’s fully licensed, but still in the permitting stage.