Trulieve Cannabis Corp. (CSE: TRUL.CN) announced it closed deals to acquire two cannabis companies this morning. Life Essence Inc., a Massachusetts cannabis company, and Leef Industries, LLC, a medical and recreational dispensary based in Palm Springs, will join the Trulieve banner.
Production and retail in Massachusetts
Life Essence Inc. has advanced-stage license applications for several retail locations, as well as a production facility. The company also has permits to run a vertically integrated cannabis business, with support letters for potential store locations in 3 cities.
Moreover, Life Essence has local approvals to develop a 126,000 square foot indoor crop facility. After the company gets final licenses, Trulieve will start opening retail locations as well.
The company could likewise retro-fit Life Essence’s current growing facility. Notably, at 126,000 square feet, the facility would be among the largest marijuana grow operations in Massachusetts, compared to publicly traded producers.
Recreational market access in California
Turning to Trulieve’s California acquisition, Leef Industries’ store will give Trulieve access to the sizeable California recreational cannabis market. Significantly, its base in Palm Springs is a popular leisure and tourism destination, which dovetails well with Trulieve’s target market. Palm Springs’ local demographics could offer another market for Trulieve’s products.
No word on price paid
Interestingly, Trulieve hasn’t disclosed how much they paid for both companies. Nonetheless, the company previously stated they had a $15m budget for acquisitions in 2018/19. However, the two purchases only come with one retail store that’s in operation, indicating the company probably hasn’t spent the entire budget. It also means they probably paid somewhere in the single digit range for each company.
So, what’s the impact to shareholders or potential investors in Trulieve’s stock? Well, the fit is right, strategically.
With Life Essence, Trulieve can bootstrap from the company’s existing footprint in Massachusetts to implement its own vertically-integrated model. Because Life Essence is currently in the earlier stages with relatively low brand development, Trulieve could resultingly get added market penetration for its Trulieve brand.
Meanwhile, the Leef Industries acquisition comes with added revenue right away. In addition, Directors on Trulieve’s board have previous experience operating dispensaries in California. It’s likely they’ll use that knowledge to grow their California expansion.
So, what does this mean for investors?
Ultimately, Trulieve is delivering on their previous promise to expand beyond Florida. At the same time, their stock is trading at approximately 10 times Trulieve’s 2020 EV/EBITDA. That’s an estimated 1.5 times multiple discount to its peers among U.S. publicly-traded stocks. Simply put, the relatively low multiple means the stock may be cheap.
Like many U.S. companies in the cannabis industry, Trulieve has dual listing in Canada and over-the-counter in the U.S.