For the past year, investors have fixed their sights on recreational cannabis becoming legal in two places: California and Canada. There is at least one good reason. About 100 million people reside there. But let’s not forget about Florida. This is where both Trulieve Cannabis Corp (TCNNF) and Liberty Health Sciences (LHSIF) hang out.

True, only medical cannabis is legal in Florida. And the sunshine state is just one of 32 states with similar laws permitting medical use. It is anybody’s guess whether recreational usage will ever become permitted or how long it will take. So what makes Florida so special?

For starters, it is the second most populous state with 21 million residents. As we know, Florida is filled with an aging population that has plenty of aches and pains, so there is a ready market for CBD applications. Staking a claim for retail distribution will create real value for the inevitable day when cannabis is entirely legal.

TCNNF: First mover with over half the market

Quincy, Florida based Trulieve presents itself as the first fully licensed medical cannabis company in Florida. Twenty-five of their dispensaries are scattered throughout the state. The only other location was recently acquired in Palm Springs CA. The company has nearly 100,000 patients and offers Trulieve branded products consisting of more than 120 SKUs. Home delivery is also offered.

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Trulieve produces 100 percent of all the products it sells. By our estimate, TCNNF represents about half of all of the dispensaries in the state. As of early 2018, the company claimed it had captured a 67 percent market share

Federal filings indicate that Trulieve extracts 33,000 mg of active THC or CBD per week from company-owned facilities. What is all this worth? Investors currently place a $1.4 billion value on the company, ranking TCNNF as one of the largest cannabis companies in public hands. With this power comes opportunity.

Impressive financials

Trulieve will report final results for 2018 about any day. Only three analysts follow the company. The expectation is for revenues to reach $100 million for 2018, marking a 400+ percent year over year gain. The company boasts a gross profit margin of 41 percent and has been for nine months, even trending higher throughout the year. That is almost always a good sign.

Earnings per share have been running $0.29 per share in the last year and are expected to hit as much as $0.60 this year and $0.80 per share in 2020. Before getting too excited here, one thing should be understood: cash earnings, which exclude the markup of inventory assets, are much closer to breakeven. Nevertheless, Trulieve makes no secret in its accounting, so the income statement is pretty impressive.

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The balance sheet isn’t that bad either. As of September, there was $42 million of cash in the bank and $63 million in working capital. Most importantly net cash generated from operations was $17.2 million. This doesn’t mean that the company won’t need outside help. However, with its equity priced at $1.4 billion, management has flexibility.

A match made in Florida

Earlier this month we wrote an article titled “Liberty Health Sciences: Eat Or Be Eaten”. The title may sound like I believe the company is a proverbial sitting duck, but that is not the case. Liberty, with 11 company-operated dispensaries throughout Florida and 150,000-square-feet of production space, makes a certain case for TCNNF to court. Together, these two native Floridian companies would control about two-thirds of the states licensed medical dispensaries. As for when and if Florida legalizes recreational cannabis, they would be in a great spot with infrastructure in place.

As we pointed out recently, Liberty is in need of some serious capital to pursue its development goals. For that matter, so does TCNNF. However, Trulieve’s size and positive cash flow could be a desirable attraction to Liberty.

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As in the past, I claim no knowledge of any possible deal or even any discussions taking place. But one thing is clear: about every investment banker on the street is looking at the combined marketing benefits and appreciates how easily $1.4 billion Trulieve Cannabis could absorb $244 million Liberty.

No matter if you are an investor or investment banker, Liberty’s stock has seriously underperformed, having fallen 40 percent in the last four months and by two thirds from peak 2018 levels. With underperformance like this comes vulnerability, and that makes Liberty ripe for the picking.