Is This Pot Stock a Buy?

This marijuana company has led its shareholders on a wild ride. The stock is up 35% year over year, but now down nearly 50% from its February highs. That’s despite the company growing its revenue and operating income…

less non-cash items (EBITDA) by 78% and 55%, respectively, to $215.1 million and $94.8 million in the second quarter of 2021. So what gives?

As it turns out, Trulieve Cannabis (OTC:TCNNF)(CNSX:TRUL) faces several stumbling blocks ahead, with its growth looking poised to fall off a cliff. So is this a good time to open a stake?

A promising acquisition

Because of its sheer size, Trulieve is having difficulties sustaining historical rates of growth. Its revenue and EBITDA increases are lower than last year, when they roughly doubled. So it’s going ahead with its $2.1 billion acquisition of Harvest Health (OTC:HRVSF) to make up for the shortfall. The deal has received approval from the Supreme Court of British Columbia, where Harvest Health is domiciled. 

Once it is finalized, Trulieve will add 42 more dispensaries to its roster, which it is focusing around three cannabis “hubs” in the East, West, and Gulf Coast. During Q2 2021, Harvest Health grew its revenue 84% over the prior year’s quarter to $102.5 million, mainly thanks to skyrocketing cannabis sales in Arizona. But don’t get too excited about Trulieve’s prospects just yet. 

The major red flag 

It’s quite clear to any outside observer that Trulieve holds the dominant position in the Florida medical marijuana industry — it operates 88 of its 98 total stores in the Sunshine State, where it commands a 46% market share. However, don’t assume that the company attained this success due to sheer perseverance and hard work. Earlier this month, a secretly recorded conversation between former state representative Halsey Beshears and J.T. Burnette, a businessman and the husband of Trulieve’s CEO Kim Rivers, came to light.

During the recording, Burnette bragged about working with Beshears to grant his then-girlfriend, Rivers, and Beshears’s brother Thad (who is now on Trulieve’s board of directors) an advantage in their application for one of five medical marijuana licenses in the state. After the conversation, criteria — including requirements for dispensaries to put up multi-million dollar bonds, have an inventory of 400,000 cannabis plants, and be incorporated (while conducting non-cannabis operations) for 30 consecutive years — were added at the last minute to Florida’s medical marijuana bill. This made it impossible for Trulieve’s competitors to qualify for a dispensary license.

On Aug. 15, Burnette was found guilty of five charges involving extortion and lying to the FBI in unrelated cases. Trulieve is currently not under investigation for alleged past misconduct.

So should I invest now? 

Trulieve could be in…

Continue reading at THE MOTLEY FOOL


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