Key insights
- Analyst expresses a bullish outlook on Trulieve (TRUL) due to the potential rescheduling of marijuana, which could significantly reduce the company's tax burden by removing the 280E provision. This could lead to a substantial increase in free cash flow and potential recovery of Uncertain Tax Position (UTP). Further upside is anticipated if recreational marijuana is rescheduled or if SAFE Banking Act passes, allowing for NASDAQ uplisting and increased US fund flows.
LONG Trulieve (TRUL) thesis: * DOJ just rescheduled medical marijuana from Schedule I to Schedule III yesterday * This removes the 280E provision that prohibits businesses from deducting business expenses, making the effective tax rate 25% (down from 60%+ for Schedule I companies) * FCF should go up 2-3x * Recreational marijuana has not been rescheduled yet but there is a hearing on June 29th to do so, the administration purposefully did a 2 track process to avoid challenges * TRUL also has $630MM of Uncertain Tax Position (UTP) that could be reclaimed, the DOJ order yesterday "encourages" the Treasury and IRS to consider "retrospective relief" from Section 280E * TRUL trades at 5.5x EBITDA, 60% gross margin, 36% EBITDA margin * First wave buying would just be from cash flow inflection to delever and grow * Second wave buying would be massive if the Feds provide a new Cole memo or SAFE banking act to allow marijuana companies get proper banking services, get uplisted to NASDAQ (require custody services), and US fund flows * TRUL should be up 50-100% on cash flow alone, and possibly 100%+ if recreational marijuana is also rescheduled and/or expanded banking services * No narcotics have been permitted for one use but not another; chances of a rescheduling of recreational marijuana is high
Position - 3500 shares @$12.04