The majority of U.S. states now have medical cannabis laws that let dispensaries sell products to adults with prescriptions from their doctors. The laws vary considerably. Some states restrict prescriptions to people with specific health problems, such as epilepsy or PTSD. Others will let doctors write prescriptions for back pain and headaches.
Currently, Trulieve has locations in 11 states. It holds leading market positions in three states: Florida, Arizona, and Pennsylvania. As more states legalize medical cannabis, Trulieve will have more markets available for growth.
Recreational cannabis laws also present exceptional opportunities for Trulieve and other cannabis companies.
Why Did Trulieve Stock Value Fall?
Trulieve’s revenues have been growing year over year since at least 2019. At the same time, the Florida-based company has been pouring more of its money into opening new locations and laying the groundwork in states that could pass legalization laws in the new future.
It’s difficult to say exactly why enough investors pulled out to cut the stock value so much. It’s a fair guess, though, to say that they weren’t happy with the company’s overall profits.
If that’s their perspective, they may be making a poor short term call at the expense of a long term opportunity.
Trulieve Invests in Its Business Growth
If Trulieve was struggling to sell its products and generate income, you would have a good reason to sell your shares.
The fact of the matter is that Trulieve’s revenues are up. Here are some critical numbers from the company’s 2021 Q4 report:
Reported revenues:
- 2019: $252.819 million
- 2020: $521.533 million
- 2021: $938.385 million
Total expenses:
- 2019: $78.566 million
- 2020: $168.114 million
- 2021: $369.184 million
Gross profits:
- 2019: $191.837 million
- 2020: $386.417 million
- 2021: $566.130 million
Basic net income per common share:
- 2019: $0.48
- 2020: $0.55
- 2021: $0.13
It’s that bottom list of numbers that probably scared off some investors. Essentially, Trulieve became a victim of its success by investing in growth initiatives.
There is a strong possibility, though, that this is a short-term setback. In fact, you could even interpret the lower stock price as a good opportunity for new investors to buy shares.
According to a discounted cash flow forecast analysis, the upside potential for Trulieve sits at $31.56 per share, representing 56% upside from current share price levels.
Cannabis Stocks Are Not Short-Term Investments
Some stocks are obvious opportunities to make quick cash. The legal cannabis industry will not work that way. There is still so much work for regulators and businesses to do.
Expenses go far beyond opening stores and buying merchandise. Companies also need to contribute funds to legalization efforts throughout the country.
Holdout states might take years or decades to come around. Each year, though, makes it more apparent that states can use legal cannabis sales to fund everything from drug addiction recovery to public education.
Attitudes toward legal cannabis are also shifting. Pew Research shows that 64% of Americans believed that cannabis should remain illegal in 1999. About 31% favored legalization. In 2019, only 32% of Americans opposed legalization, while an incredible 67% approved of it.
The numbers become even more favorable for Trulieve and other cannabis companies when you focus on medical marijuana. About one-in-ten Americans believe that medical cannabis should be legal.
Among Republicans, who historically tended to resist legalization efforts more than Democrats and Independents, only 12% disagree with medical cannabis laws.
It will take time for more states, and possibly the U.S. federal government, to pass laws that make it easier for consumers to access legal cannabis. Once that happens, though, the cannabis companies that have done the difficult work of establishing connections and building a cannabis industry that can coordinate with governments will have the upper hand over newcomers looking to take advantage of a recent opportunity.
Is Trulieve Cannabis Stock a Buy?
Trulieve has a lot of upside from its current share price level. Fair market value suggests the stock could run north of 50% before hitting a ceiling on a valuation basis.
Analysts are much more optimistic and place an upside opportunity of over 170% on Trulieve Cannabis at this time.
Either way it seems the downside risks have largely been factored in and the dark clouds of the downtrend are starting to make way for some sunshine for patient investors.
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