Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Trulieve: Slow and Steady Wins The Race ­­

With Trulieve Cannabis (TCNNF) generating revenue growth in excess of 100%, one wouldn’t normally associate the company with slow and steady growth. In the cannabis sector, companies are generating growth rates multiples that of Trulieve leading to requirements for substantial fund raising and aggressive moves that have hurt their stocks.

Slow and Steady Growth

For Q1 reported at the end of May, Trulieve reported impressive 192% revenue growth. The company reached quarterly revenues of $44.5 million and more importantly produced a positive adjusted EBITDA of $19.0 million.

The multi-state operator (MSO) hasn’t made aggressive acquisitions or wild moves into other states leaving a focus on Florida to generate solid margins. Trulieve recently opened the 30th dispensary in the state.

With a focus on Florida, Trulieve achieved Q1 gross margins of 67%. The ability to control operating expenses by not having wild expansion plans into 10 to 15 states has allowed for limited operating expenses of $11.9 million. The company only spends about 27% of revenue on operating expenses which opens up the door for large profits in a  growth mode.

Next Phase

The best part of the story is that Trulieve has entered into three additional state markets. The company has an avenue for growth beyond Florida with a store in both California and Connecticut and plans to enter Massachusetts.

The stock has a market cap of $1.2 billion and a reasonable path to achieve the 2020 EBITDA target of $150 million. A normal stock generating 50% EBITDA growth over the ~$100 million target in 2019 would normally trade at substantially higher multiples than 8x estimates. Even a doubling of the stock wouldn’t bring the valuation multiple above the norms for 50% EBITDA growth.

In addition, the EBITDA margin is expected to dip initially as Trulieve looks to expand beyond the well-established Florida market. The company forecasts a 500-basis point hit to margins in 2020 from the peak level at 43.5% in 2019.

Most companies in the industry are scrambling to obtain gross margins at those levels so nobody should squabble over the company ramping up some spending to ensure additional growth beyond Florida. As well, investors need to keep in mind that Florida is only a medical cannabis state so a major catalyst for the company down the road is the likely eventual approval of recreational cannabis in the state.

The company has natural expansion down the road without even needing to enter other states considering medical cannabis registrations in Florida are only 250,000 residents and the state population is up at 18 million. Not to mention, the substantial number of tourists that visit the Sunshine state adds to the potential revenue boost from recreational cannabis sales.


The key investor takeaway is that Trulieve has a plan to generate significant growth without wild acquisitions that requires higher expenses and funding requirements. The stock down at $10 provides opportunity for substantial gains without the risk typical of cannabis stocks that are burning cash every day that the company is open for business. The stock market is starting to favor cannabis companies in this position so Trulieve should outperform the sector going forward.

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