Trulieve Cannabis Corp. (CSE:TRUL) delivered quarter three results in line with expectations despite multiple headwinds in what analysts at Stifel described as a “robust showing.”
The third quarter provided a number of challenges with Trulieve hit on multiple fronts: Hurricane Ian resulting in C$3.3m in lost revenue in Florida, rolling patient dose limits impacting demand and lower net patient growth.
However, Stifel noted that the company managed these well and provided guidance for the fourth quarter which was generally in line with expectations.
Performance was mixed by state. In Arizona, the company opted to clear through aging inventory using discounts during the seasonally low summer period which resulted in declining sequential sales.
In Pennsylvania, where patients continue to shift towards value, the group was able to double branded product revenue in quarter three relative to quarter one driven by sales of mid- and value-tier products.
In addition, Stifel highlighted the company’s large-scale production facility in Florida which is expected to begin bearing fruit next quarter through the first half od 2023 as it unwinds inventory built through the year.
“This suggests inventory is expected to be a source of significant cash beginning next quarter through H1/23 with 2-2.5 months a target level in the state vs roughly 7.5 months for C$300 million of current inventory on a consolidated basis,” analysts said.
Stiflel viewed this positively given the C$21.6 million of cash burn in the quarter, which when matched with C$57 million of taxes paid and 40% lower CAPEX year-on-year in 2023, could result in a material rebound in cash flow.
This could help defend the group against price pressures given expected lower production costs, resulting in potentially higher gross margin, according to Stifel.
The broker calculated there was potential for the company to generate C$100 million to C$150 million in 2023 estimated free cash flow, yielding an attractive 4% to 5%.
Stifel kept a Buy rating on the stock with a price target of C$36.50.
Contact the author at jeremy@proactiveinvestors.com