Cannabis stocks have taken investors on a wild ride ever since Canada legalized marijuana for recreational use at the federal level in 2018. Canadian stocks such as Aurora Cannabis (ACB), Canopy Growth (CGC), Hexo (HEXO), and several others were trading at record highs in early 2019, but industry-wide issues sent these stocks spiraling downwards.
On the other hand, profitable cannabis stocks in the U.S. have continued to gain momentum and have created massive wealth for long-term investors. Especially marijuana companies such as Trulieve Cannabis (TCNNF) that can churn consistent profits have rewarded shareholders handsomely.
Let’s take a look to see if Trulieve Cannabis stock can continue to surge higher in 2021 after it has gained close to 350% since late 2018.
Trulieve Cannabis is valued at a market cap of $5.48 billion
In the last three months, cannabis stocks have crushed broader market returns after Joe Biden won the Presidential race. It is anticipated that the Democrats will decriminalize or even legalize marijuana at the federal level in the U.S. This will provide cannabis stocks with easy access to capital, an expanding addressable market, and the potential to increase the top-line at a rapid pace in the upcoming decade.
Trulieve Cannabis stock has more than doubled in the last three months which means it is valued at a market of $5.48 billion. The company is one of the largest cannabis stocks in the world, with a leadership position in Florida, where its market share is approximately 50%.
The Sunshine state has legalized only medical marijuana indicating the market opportunity in Florida is still limited. In case widespread cannabis legalization takes place in the near future, investors can expect Turlieve and peers to gain massive momentum to trade at record highs.
Huge market opportunity for Trulieve Cannabis
The global marijuana market is forecast to touch $47 billion by the end of 2025, up from just $16 billion in 2019. This indicates the cannabis market is still at a nascent stage and is poised for explosive growth in the near future.
Marijuana is legal at the federal level only in 15 countries around the world. In the U.S., recreational cannabis products are legal in just 15 states, and Washington D.C., making it one of the top sectors for growth investors.
Trulieve Cannabis has reported sales of $353.1 million in the last three quarters, indicating a top-line growth of 100% year over year. Now, the company generates a majority of its sales from its operations in Florida and has expanded into other regions including California, West Virginia, and Massachusetts as well.
However, unless marijuana is completely legalized, Trulieve will find it difficult to expand aggressively as it will be illegal to transport pot across state lines. It will have to invest heavily in capital expenditure to ensure it has a robust supply chain network or pump in capital to acquire companies.
Valuation and more
Trulieve Cannabis is trading at a forward price to 2021 sales multiple of 6.8x which is quite reasonable considering its revenue and earnings growth. While analysts expect sales growth to decelerate in 2021, it’s still forecast to grow by 57% this year. The stock is trading at a price-to-earnings multiple of 38x compared to its estimated earnings growth of 164% in 2021.
Investors will be wary to invest in a stock that has already doubled in the last three months. Further, there is a good chance that legalization in the U.S. might take a few years. However, close to 70% of the U.S. population is in favor of marijuana legalization.
It also makes sense to have quality pot stocks in your portfolio that will provide you with diversification even for investors with a low-risk appetite.
The broader indexes are trading near record levels despite a weak economy. It means you need to focus on buying individual stocks with strong fundamentals and sustainable profit margins. The marijuana industry is all set to explode and will attract huge sums of investment over the next few years.
Trulieve Cannabis is a company that ticks most boxes and should be on the radar of cannabis and growth investors.
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TCNNF shares were trading at $47.32 per share on Wednesday afternoon, up $0.50 (+1.07%). Year-to-date, TCNNF has gained 49.65%, versus a 4.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More…
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