M Partners initiated coverage of US cannabis MSO Trulieve Cannabis (Trulieve Cannabis Stock Quote, Chart, News CSE:TRUL) on Thursday with a “Buy” rating and C$31.00 price target, with analyst Paul Piotrowski saying should continue to outperform the competition starting with its market-leading position in Florida’s lucrative medical market.

Tallahassee, Florida’s Trulieve currently has operations in three states aside from Florida: California, Massachusetts and Connecticut, with 1.8 million sq ft of cultivation capacity (616,000 sq ft indoor and 1.14 million sq ft greenhouse), with a capacity to produce 66,056 kg annually. The company’s SKUs are produced under a three-tier brand strategy involving Trulieve’s in-house brands, strategic brand partners and local brand partners, with 47 retail locations, 45 of which are in Florida.

Piotrowski’s investment thesis rests on a number of points, starting with Trulieve’s dominant market share in Florida at 50 per cent of THC oil sales, 30 per cent of CBD oil sales and 45 per cent of dried flower sales. The first to market with dried flower in the state, Piotrowski projects Trulieve will also be the first to market with edibles when they arrive.

Piotrowski also likes the company’s margin profile, which was at 64 per cent gross margin and 52 per cent adjusted EBITDA margin in 2019, and profitability, where the company posted a net income of $178.0 million for 2019. (All figures in US dollars except where noted otherwise.

“The Company’s profitability paired with its $91.8 million cash balance allow to it continue self-funding expansion in Florida and strategic M&A into new markets (i.e., Massachusetts, California and Connecticut),” Piotrowski said.

The analyst argued that TRUL’s focus has always been on depth over breadth but that the company’s expansion markets should be contributing more to the company’s revenue in the back half of 2020 and into 2021.

As far as COVID-19 measures go, Piotrowski highlighted Trulieve’s nearly 200-vehicle delivery fleet in Florida — the first and largest home delivery in the state, he says —where delivery revenues have shot up almost 500 per cent compared to pre-COVID-19 levels and should help TRUL gain market share in the event of any further economic disruptions and store closures.

Looking forward, Piotrowski sees Trulieve generating fiscal 2020 revenue and adjusted EBITDA of $400.4 million and $165.6 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $489.7 million and $200.8 million, respectively.

The analyst estimates TRUL trading at 5.6x 2021 EBITDA versus its peers at 4.7x but he argues for he premium by saying, “We believe a 13.0x multiple is justified given Trulieve’s dominant market share in Florida (~50 per cent), attractive gross and EBITDA margins, cash flow from operations generation, profitability and strong balance sheet.”

Earlier this month, Trulieve announced its fourth quarter 2019 earnings, featuring record revenue of $79.8 million, a 13-per-cent sequential increase, an adjusted EBITDA up 22 per cent to $45.0 million.

At press time, Piotrowski’s C$31.00 target represented a projected 12-month return of

142 per cent.