Cantor Fitzgerald analyst Pablo Zuanic wrote an upbeat research report on the major cannabis companies despite the somewhat depressing tone in the industry. Zuanic said he hosted 17 company meetings at MJBiz last week and the overall mood was positive. Despite the sunny optimism, the analyst opted to leave ratings, estimates, and price targets unchanged.
Zuanic wrote that for Trulieve (OTC: TCNNF), “Most of the heavy lifting from the Harvest integration has been completed (AZ store rebrand underway), and management thinks it is ahead of peers on tech (SAP; 24 months into the ERP process).” Legalization of adult use in the state would boost the stock and polling is pointing to 70% support and signature collection is running on track. The next main hurdle is the state supreme court review process in early 2024. Trulieve also outlined what it thinks are the positives in the next year. They include:
- The Florida patient count growth improving (+2,500/week now)
- The start of adult-use sales in CT and MD
- It believes the recent election increases the probability of PA going to adult-use
- WV and GA (although only oils are allowed for now) should begin to ramp.
Zuanic sees the divestiture plan moving ahead and seems to be secure. The Cresco brands enjoy better market share than the Col-Care brands so the company expects to roll out the Cresco brand portfolio across the Columbia Care footprint. “According to management, there is room to improve margins in the combined company, especially in states in either start-up mode or going through a phase of investment,” wrote the analyst.
- TRSSF believes in 6-12 months it may be in a position to list in the TSX
- In MI, given distress in the market, it sees opportunities to expand by acquiring more stores
- Two NJ stores are “90% of the way to the $40Mn/store annual sales target run rate.
- The company is removing delinquent accounts
- Reining in expenses
- It expects to be cash flow positive by 1H23
Zuanic wrote, “With the new structure (US assets more than half of sales), CGC expects to be EBITDA and cash flow positive by late 2023 (capex will be minimal, with investments in BioSteel and negative operating cash flow in the Canadian rec unit, the main drag on cash flow).
The report stated that Sundial was working on various fronts to unlock value (SNDL trades at almost a 50% discount to management’s estimated book value per share of US$4.77). SNDL has C$250Mn of unrestricted cash (no debt), 820K sq ft of indoor cultivation in Canada, and 350 retail doors (liquor and cannabis).
Aurora Cannabis is well-positioned in the German market. The report stated, “ACB expects to be EBITDA positive by end of this calendar year; it is in a net cash position (it continues to chip away at the convertible debt) and says it will use its equity facility for strategic purposes only (or reduce the convertible debt) and to fund operations.”
The analyst said that most of the MSO management teams he met with felt the probability of SAFE passage in the lame-duck session has increased post the election. Zuanic added, “Most US companies recognized that M&A has taken a wait-and-see attitude ahead of the potential passage of SAFE, but most agreed that consolidation would accelerate without SAFE as several smaller operators will not be able to refinance their debts.”