Trulieve enters Pennsylvania with two acquisitions and announces underwritten offering of 4.1M subordinate voting shares (TCNNF)
Trulieve made two significant announcements yesterday. First, the company announced that it had entered into definitive agreements for two acquisitions in Pennsylvania: cultivator and producer PurePenn and dispensary operator Solevo Wellness (Keystone Relief Centers LLC). The combined transactions will enable Trulieve to enter Pennsylvania with existing vertical operations.
PurePenn produces pharmaceutical-grade medical marijuana products and currently operates a 35,000 square foot cultivation and processing facility in McKeesport, PA, which is undergoing expansion to 90,000 square feet expected to be operational by Q1 2021. With its 100% wholesale model, PurePenn has an established distribution network including Solevo and other private/public medical marijuana companies. Trulieve agreed to acquire the private company for $46M, comprised of $27M in Trulieve subordinate voting shares ("Trulieve Shares") and $19M in cash, with a potential earn-out payment of up to approximately $60M in Trulieve Shares based on the achievement of certain agreed EBITDA milestones.
Solevo owns and operates three dispensaries in the Pittsburgh area. Trulieve agreed to acquire Solevo for $20M, comprised of $10M in Trulieve Shares and $10M in cash, with a potential earn-out payment of up to approximately $15M in Trulieve Shares based on the achievement of certain agreed EBITDA milestones.
The combined acquisitions total $66M upfront and makes Pennsylvania the fifth state that Trulieve operates in. As of the end of Q2, the state reported that out of the 33 companies permitted to cultivate in the state, only 26 grower/processors were deemed operational, and of those, only 15 of those were actively shipping to dispensaries. Pennsylvania is the fifth-most populated state in the U.S., with approximately 13M people and an expanding medical marijuana patient base of 330,000 patients as of June 30, 2020. BDS Analytics estimates that medical market in Pennsylvania in 2019 was $420M and projects sales of $575M for 2020. Trulieve expects these transactions to close sometime in Q4.
Trulieve, a Hedgeye Cannabis Best Idea Long, is our top pick in the sector. Unlike other MSOs, Trulieve hasn’t rushed its expansion efforts. Their steady domination in Florida’s medical market has come about with a replicable operating strategy, and we are optimistic on this recent expansion into the budding Pennsylvania market under CEO Kim River’s management.
In Vermont, a bill to a legalize commercial marijuana sales
Lawmakers in Vermont reached a deal earlier this week on a bill legalizing commercial marijuana sales for adults over the age of 21. The northeastern state, with a population of roughly 625,000, first legalized recreational marijuana in 2018. However, the 2018 bill only legalized personal use and home cultivation – not commercial sales. This bill would establish a Cannabis Control Board to regulate the state’s industry, levy a 14% excise tax on marijuana products, and allow state regulators to make recommendations on marijuana advertising.
Within the state legislature, Democrats hold majorities in both chambers, and the bill is expected to pass in both the House and the Senate. The bill’s hurdle will likely be Gov. Phil Scott (R) where it remains unclear whether he will sign the bill.
IIPR Replay
Yesterday, we outlined our long thesis on IIPR, a company at the intersection of the cannabis industry and the REIT space in a rapidly changing legislative landscape. IIPR is earning outsized returns in the current environment with few competitors. The risks are misunderstood, but we go through them in detail. We also went over our current views on investment themes within the U.S. cannabis industry.
IIPR, the only U.S. listed cannabis REIT, focuses on the acquisition, ownership, and management of specific industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. We are bullish on the U.S. cannabis industry, and IIPR is well-positioned to ride the industry’s overall momentum through a growing pipeline of deals. The company currently owns 62 properties, at approximately 4.7M rentable square feet, and has upwards of $1.1B in invested capital. IIPR has high-quality tenants, a conservative balance sheet, and a stellar management team that can execute.
IIPR was raised to a Hedgeye Cannabis Best Idea Long on September 9th. The company was placed on the Hedgeye Cannabis Long Bias List on May 29th.
CLICK HERE for the replay (includes video and materials link)
