Trulieve: The Avenue Has Misunderstood The Fairness Providing (OTCMKTS:TCNNF)


Trulieve (OTCQX:TCNNF), the primary hashish operator in Florida, not too long ago introduced a secondary providing price as much as $87.4 million. Based mostly on the inventory’s 5% selloff on the information, in addition to commentary on associated articles, it seems that the investor base felt uneasy concerning such dilution. As a shareholder myself, I really feel in any other case: this fairness providing offers TCNNF a much-needed infusion of money. The stronger stability sheet offers it monetary flexibility in addition to a big purpose for a number of growth. I price shares a robust purchase for long-term buyers.

Dilution: A Lengthy-Time period Funding

TCNNF introduced that it had entered an settlement with Canaccord Genuity to sell 4.1 million shares for C$24.50 each, in addition to an over-allotment possibility for an extra 615 thousand shares. This works out to a possible whole of roughly $87.4 million (until in any other case famous, all forex figures are in US {dollars}). The market did not appear to love the information, because the inventory dipped round 5% for the day:

(Google Finance)

On the floor, the response appears to be like justified. If TCNNF is issuing shares, that suggests that it thinks its inventory is overvalued, proper? Additional, this will increase shares excellent, which reduces present shareholders’ possession of underlying earnings, proper?

Whereas each statements are considerably true, specializing in these statements solely would miss the general image. Sure, shares excellent will develop by practically 4%. In return, nonetheless, TCNNF will get a revitalized stability sheet picture. TCNNF ended the final quarter with $150 million in money versus $130 million in debt. At first look, it would appear to be TCNNF didn’t want more money in any respect. TCNNF’s debt, nonetheless, usually have yields within the double digits. TCNNF’s most up-to-date debt providing had a yield of 9.75%. As a shareholder, such a excessive value of capital frightens me. I might be significantly troubled to see TCNNF proceed to problem debt at double-digit yields, even when doing so can be extra accretive to its backside line than issuing shares. Why is it dangerous? For example that TCNNF retains rising its presence by issuing ~10% yielding debt. If the expansion pans out, then the investments doubtless would yield excess of 10%. However what if TCNNF is unable to show profitability in new markets? Income would possibly by no means materialize, however the curiosity expense accrued from funding the expansion would stay a thorn within the aspect.

After this fairness elevate, TCNNF would have extra internet money on its stability sheet, giving it the power to scale back its value of capital over time. I count on TCNNF to attempt to refinance its excessive yielding debt at decrease rates of interest, which could be doable provided that its stability sheet is now a lot stronger. This fairness providing has dramatically decreased stability sheet threat within the occasion of a downturn within the hashish sector. TCNNF now has sufficient internet money to afford 4 years of curiosity bills even when TCNNF is unable to generate free money stream.

That results in the following profit: a number of growth. Evidently firms with internet money stability sheets are likely to commerce at premium multiples and that can not be extra true within the hashish sector. Canadian peer Cover Development (CGC) trades round 17 instances gross sales versus roughly 5 instances the value to gross sales for TCNNF. Not like CGC, TCNNF is money stream optimistic, suggesting that CGC’s premium a number of isn’t on account of superior monetary efficiency however as a substitute maybe on account of its itemizing on US main exchanges in addition to the numerous internet money on its stability sheet. TCNNF will not be capable of clear up the previous problem till hashish is decriminalized on the federal stage, but it surely has made a big step towards addressing the latter. Previous to the fairness providing, any optimistic attributes concerning TCNNF’s robust profitability metrics and scale in Florida could possibly be counteracted by its massive debt load. Now, TCNNF has a robust internet money stability sheet that appears extra like CGC’s stability sheet than it did yesterday.

TCNNF’s stronger stability sheet stands out as the key to paving the trail for a number of growth, which might make the corporate be capable of problem much more fairness to fund exterior investments. That time is vital.

The present aggressive panorama is one outlined by aggressive market share growth and consolidation – if TCNNF can depend on its inventory as low cost forex, then this is able to place it better off to friends that would not have the identical luxurious and must as a substitute depend on double-digit value of capital.


It’s a mistake to punish TCNNF for issuing inventory at this juncture. The elevated money on its stability sheet helps to scale back monetary threat which, in flip, could assist TCNNF decrease its value of capital. Whereas this piece particularly focuses on the fairness providing, I observe in passing that when backing out 280E taxes, TCNNF earns an annualized $81 million in internet earnings, suggesting that shares commerce at 30 instances “legalized” earnings (280E taxes would go away as soon as hashish is decriminalized federally). Even after the robust inventory efficiency this 12 months, shares stay deeply undervalued in comparison with its progress potential within the medical marijuana house, to not point out the immense upside as soon as adult-use hashish is legalized in Florida (and nationally). I price shares a robust purchase.

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Disclosure: I’m/we’re lengthy TCNNF. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.


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