For some time Trulieve (TCNNF) has enjoyed a significant market lead in the Florida cannabis market, having built up a solid retail and cultivation business in the state. That has been rapidly changing as strong competitors increase their presence in the market.
In the last quarter it generated $35.9 million in revenue, up 171 percent year-over-year, and EBITDA profits of $15.2 million, up 21 percent sequentially.
While I believe the company should be able to do well in the near term, further out, the growing amount of competition in Florida, and its fairly slow pace of growth outside the state, could put the company under pressure further out, if its multi-state growth doesn’t match or exceed the probable decline in performance in Florida.
The first thing to consider in regard to competition in Florida is it is rapidly coming close to reaching the saturation point in my view, and that means the potential for it to be eventually be commoditized. That suggests revenue, margins and earnings could come under pressure as competition ramps up.
I like the frugal manner in which management runs the company, but market saturation, scale and deeper pockets can overwhelm frugality if it doesn’t include increasing revenue.
As for the specific companies, they are some that are larger than Trulieve and enjoy superior funding. They are advanced MSOs that have proven the ability to be successful in various markets.
The major immediate threats to Trulieve in the Florida market are Surterra and Curaleaf, and close behind them are Liberty Health, which has been aggressively expanding.
Combined with its relatively weak presence in other states, this is a potentially big long-term risk to Trulieve, because of its heavy reliance on and exposure to Florida.
Other states it’s expanding in
The states it has made acquisitions in over the last six months are California, Connecticut and Massachusetts.
In California the acquisition was a cannabis dispensary; in Massachusetts a cannabis license; and most recently in Connecticut it was also a cannabis dispensary named ‘The Healing Center,’ which includes an online ordering system called Canna-Fill, which fulfills medical cannabis orders from other producers.
All of this were needed moves, but overall, they’re very incremental and will take time to leverage to their full value for the company.
I like Trulieve in the short term because it appears it still has the ability to ward off some of its competitors without suffering revenue loss or having to lower margins to compete.
Further out it’s not as clear as to how it’ll be able to defend its market position in Florida, since it’s rapidly becoming saturated with deep-pocketed competitors.
The race is now on to increase its multi-state presence in order to diversify its risk and grab meaningful share in other markets. The pace at which it is able to do that will determine the impact on the company’s performance going forward.
What needs to be watched closely is if it starts to lose market share, revenue and earnings in Florida, and how quickly it is able to offset that with growth in other markets.
If its ancillary markets are slow to scale, Trulieve will struggle to find ways to maintain its pace of growth, and could, over time, even contract.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has no positions in Trulieve stock.
Read more: Trulieve Cannabis Is a Compelling Investment Story