TFSA Investors: Is it Time to Bet on This Billion-Dollar Pot Stock?

Here’s why Trulieve Cannabis stock is a solid bet for TFSA investors.

| More on:

The structural issues plaguing cannabis stocks have driven share prices to multi-year lows. The recent COVID-19 pandemic has exacerbated this decline. But the massive pullback in marijuana stock prices also provides an opportunity for contrarian investors to buy growth stocks at a lower valuation. The rapidly expanding global marijuana market will drive pot stocks higher in the upcoming decade, making them ideal for your TFSA (Tax-Free Savings Account).

The TFSA contribution for 2020 stands at $6,000, and you can allocate a part of it to buy quality medical marijuana companies. Medical marijuana is legal in several states south of the border and in most European countries. According to a ResearchandMarkets report, the global medical marijuana market is expected to grow at an annual rate of 22.4% through 2024 to reach $44 billion.

The U.S. continues to be a huge market for medical marijuana companies, where 33 states have legalized these products. We’ll look at one Canadian stock that is well poised to take advantage of the growth in medical marijuana.

Trulieve Cannabis (CNSX:TRUL) is a vertically integrated marijuana producer. It produces medical marijuana and distributes products to company-owned retail dispensaries. The company’s operations are primarily located in Florida, where it has 48 retail dispensaries.

Florida is the third most populous state in the country, and Trulieve’s seed-to-sale operations has a 53% market share here. Trulieve’s first-mover advantage is Florida, which has provided it with several benefits, including brand recognition.

Why is Trulieve a solid bet for cannabis investors?

While most cannabis companies, including giants such as Aurora Cannabis, are struggling with mounting losses, Trulieve consistently generates profits. Further, it has over 443 SKUs (stock keeping unit) and continues to add to its product portfolio.

The company aims to leverage its widespread dispensary network and large delivery fleet and access a multitude of patients all over Florida. It is focused on replicating this strategy in other regions. The other states in the U.S. where Trulieve has a presence include California, Massachusetts, and Connecticut.

In the first quarter of 2020, Trulieve reported sales of US$96.1 million, a sequential growth of 21%. Its adjusted EBITDA was US$49.4 million, indicating a margin of 51%. The company reported an adjusted earnings per share of $0.12 in Q1. Trulieve ended Q1 with a cash position of $100.8 million and opened three new stores as well in Florida.

Trulieve stock is currently trading at US$16.75, which is almost 200% above its 52-week low. The stock went public back in September 2018 and has since returned 9.5%, which is exceptional considering how most cannabis stocks have been decimated in the last 20 months.

Trulieve stock has a market cap of US$1.36 billion. Analysts expect company sales to rise by 70.2% to US$430.18 million, indicating a forward price-to-sales multiple of just 3.2. The stock is trading at a forward price-to-earnings multiple of 22, which is really cheap, considering its five-year estimated earnings growth of 59%.

Analysts tracking Trulieve have a 12-month target price of US$23.4, indicating an upside potential of 90%. Trulieve’s low valuation, profitability, and strong growth rates make it one of the top cannabis stocks for the upcoming decade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »