Proactive Investors - Earnings season ramped up this week for cannabis multi-state operators (MSOs), with growth within the medical cannabis sector driving positive numbers for companies in the sector.
Strong positioning in Florida’s growing medical marijuana market in addition to its large retail presence, with 68% of its retail stores located in the state, helped Trulieve Cannabis Corp. (CSE:TRUL) impress.
Stifel analysts raised their price target on the stock from C$8 to C$9 and awarded it a ‘Buy’ rating following its 2Q results. Trulieve’s shares traded down 4% at C$5.42 on Friday afternoon.
For 2Q, Trulieve grew its revenue by $3 million sequentially to $282 million and achieved a gross margin of 50%, with a gross profit of $142 million.
However, its adjusted net loss was $15 million or $1.80 per share compared to income of $3 million or earnings per share of $0.09 in the year-ago quarter.
“Trulieve reported strong 2Q/23 results with impressive cash generation when taking tax payments into account, aided by an aggressive inventory monetization program but without the associated margin degradation we had expected,” Stifel’s analysts wrote.
“In contrast, the company expanded its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin sequentially by reigning in operational expenses, with management indicating further room for improvement.”
They also noted that their positive stance on the stock was supported by Trulieve management’s ability to successfully defend its leadership position in Florida offering a reliable “cash cow core business” and the significant optionality upon recreational conversion in Florida with visibility towards a 2024 recreational ballot.
The analysts were less upbeat on New York-based Curaleaf (CSE:CURA) Hldgs Inc. (CSE:CURA, OTCQX:CURLF). They have a ‘Sell’ rating on Curaleaf shares, which traded had tumbled 9.3% to US$2.8 on Friday afternoon.
The company reported 2Q sales of $338.6 million, slightly below the Street estimate of $338.9 million, while its reported adjusted EBITDA of $70 million was below the consensus forecast of $76.4 million.
Analysts at Stifel noted that the company had reported good operating cash flow at the expense of significant gross margin degradation.
“The benefit from exiting the cash-burning West Coast footprint had a full quarter contribution, but did not outweigh the aforementioned headwinds, with Curaleaf returning to its EBITDA margin from 4Q/22 including its dilutive discontinued assets and pointing to a more difficult pathway to achieve its previous 2023 EBITDA margin guidance of mid-20%,” they wrote.
They added: “It seems management is prioritizing cash generation with positive free cash flow from continuing operations, which we believe is necessary given $100 million of seller's notes due in the next 18 months and its $85 million cash position.”
The analysts wrote that this, combined with Curaleaf’s valuation premium, supported their view that its shares could underperform.
To the north, Alberta, Canada-based Aurora Cannabis Inc (TSX:TSX:ACB, NASDAQ:ACB) reported 2Q revenue of $75.1 million, up from $50.1 million in the year-ago quarter on the growth of the company’s medical cannabis business and record quarterly revenue in its plant propagation business.
It narrowed its net loss from $618.8 million in 2Q 2022 to $28.3 million, primarily attributed to a decrease in other expenses of $552.3 million.
Cannabis MSOs also spend the second quarter preparing for the launch of recreational adult-use cannabis in Maryland, which commenced on July 1.
During 2Q TerrAscend Corp. (CSE:TER, OTCQX:TRSSF) acquired three dispensaries in Maryland and subsequent to the quarter end closed its Herbiculture acquisition to reach the four-store limit in the state.
Additionally, Trulieve noted that its Maryland dispensary traffic increased 200% in July with the adult use launch.
Green Thumb Industries Inc. (CSE:GTII, OTCQX:GTBIF) also highlighted that it commenced adult-use sales at its four Maryland retail stores in Hagerstown, Joppa, Silver Spring and Bethesda on July 1, with a portion of the profits from its first day of adult-use sales being donated to local charities.