Trulieve Q3 Earnings (TCNNF)
TCNNF is on the Hedgeye Best Idea list as a long and posted a very strong 3Q20.
Trulieve had a record quarterly revenue of $136.3 million, representing a sequential QoQ of 13% and a 93% increase YoY. Unaudited pro forma revenue, which includes PurePenn and Solevo and assumed the acquisitions had occurred on January 1, 2020, would have been $154.9 million for the current quarter and $392 million for the nine months ended September 30. In 3Q20, the shift to GAAP may be causing some differences to consensus numbers, but under GAAP, TCNNF had a gross margin of 75%. Operating income for the company was $43.4 million in 3Q20 compared to $37.5 million last quarter. Net income was $4.7 million for the third quarter compared to $6.6 million in Q2, resulting in EPS of $0.04. Under IFRS, for net income and EPS, it's important to note that if the fair value impact of biological assets and the revaluation of debt warrants were excluded, net income would increase to $33.3 million for the third quarter compared to $28.4 million in Q2, resulting in EPS of $0.30. Under GAAP, the fair value impact of biological assets accounting goes away, but the debt warrants' revaluation will remain. Under GAAP, net income was $17.4 million, resulting in EPS of $0.15 on a fully diluted basis.
More details to come
We presented Trulieve as a Hedgeye Cannabis Best Idea LONG in February 2020.
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Curaleaf Q3 Earnings (CURLF)
CURLF is on the Hedgeye Cannabis LONG Bias List.
In line with the other top MSOs, Curaleaf reported another record quarter on the top line, slightly missing consensus estimate, with revenues of $182.4 million versus FactSet Consensus $190.6 million, an increase of 55% QoQ and 195% YoY. The topline growth was primarily driven by retail revenues, which grew 207% YoY to $135.3 million, with organic growth and new store openings in Florida, Massachusetts, Arizona, and New York, along with realizing the acquisitions of Grassroots, Curaleaf NJ, and Arrow, and Maine Organic Therapy. Curaleaf’s wholesale business, comprising $45.0 million of Q3 revenues, grew nearly seven-fold YoY. Gross margin on cannabis sales improved to 50%, an improvement of 700bps QoQ and 300bps YoY. The increase was primarily due to the continued improvement in the company's cultivation and processing facilities' operating capacity and efficiency. Adjusted EBITDA was a record $42.3 million, representing an increase of 51% QoQ and 305% YoY. OpEx jumped to $99.41 million in Q3, increasing 67% QoQ, an unsurprising figure as the company integrates the Grassroots acquisition. The company’s cash position fell 31% QoQ to $84.6 million, while net debt stands at $280 million.
After five years, the company also announced that current CEO Joseph Lusardi would be stepping down, with current Curaleaf President Joseph Bayern assuming the role effective January 1, 2021. Lusardi will be named Executive Vice-Chairman of the Board effective the same date. Bayern joined Curaleaf in December 2019 and brings over 20 years of executive leadership experience in cannabis and the CPG space. Previously, Bayern served as President at INDUS Holdings, a vertically integrated cannabis company, and Chief Executive Officer and Chief Operating Officer of the global beverage leader VOSS of Norway.
Arguments heard in California cannabis delivery case
On Monday, oral arguments were given at Fresno County’s Superior Court on a case concerning cannabis delivery. In July 2018, the state’s Bureau of Cannabis Control mandated that state-licensed cannabis delivery businesses could deliver marijuana products anywhere within the state, regardless of city or county restrictions faced by commercial cannabis operators. In April 2019, 25 local governments filed a lawsuit against the Bureau of Cannabis Control, arguing that the policy on delivery violated state laws that guarantee cities and counties the right to prohibit marijuana commerce within their boundaries. The success of the suit would be highly detrimental to cannabis delivery businesses in the state. Since approximately two-thirds of the state’s cities and counties prohibit licensed brick-and-mortar retailers, these cannabis delivery operators' revenues depend on this state policy. A ruling has yet to be given, but legal observers suggest that the case has the potential to go all the way to the state Supreme Court.
