Marijuana stocks continue to struggle.
Canopy Growth Corp. (NYSE:CGC) announced earnings Friday that were abysmal.
On the terrible financial report, shares dropped from nearly $22 to about $16.50, as I write.
This is nothing new, however. Cannabis stocks have been disappointing for quarters now. Most are still a long way from their early 2020 highs.
But one play is bucking this trend. And the way it is doing so is even more remarkable.
Trulieve Cannabis Corp. (OTC:TCNNF), (CSE:TRUL.CN) is an entirely different kind of pot stock from the rest.
For starters, it is an American company with American dispensaries despite its Canadian listing. 48 of its 50 stores are in Florida, doubling down on the huge industry there.
And, if you are familiar with Florida marijuana laws, you already know that it is only a medical marijuana state. Meaning Trulieve’s operations are strictly on the medical side.
This might seem like a problem. After all, recreational marijuana is potentially much larger of an opportunity. But by sticking to medical only, Trulieve addresses other, more significant problems.
Problems with Other Pot Stocks
To discover just why Trulieve is excelling while others are floundering, we first must look at those others.
Canopy, Aurora Cannabis Inc. (NYSE:ACB), Cronos Group Inc. (NASDAQ:CRON) and the other major names in the industry are all Canadian.
We’ve discussed problems with the Canadian cannabis market before. So, to keep this short, it comes down to supply issues and high overhead costs.
The U.S. market, on the other hand, is ripe for a boom.
33 states have already opened up their lawbooks to either recreational or medical marijuana. Florida is one of them.
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This brings me to the second major problems facing those others in the U.S. Trulieve is by far not the only U.S.-only player.
Take Cresco Labs Inc. (OTC:CRLBF) for instance. It operates dispensaries like Trulieve. But it does so in Illinois, Pennsylvania, Ohio, California, Massachusetts, New York and others.
These are great markets.
But, they are also mixed with some markets being recreational and other medical use only.
Or look at Curaleaf Holdings Inc. (OTC:CURLF). It operates in 17 different states. All of this creates two problems.
As noted, splitting your efforts between recreational states and medical ones creates a giant headache on how you market and sell you products.
So, as much as investors like to hear the word synergy, there’s a distinct lack of it between Curaleaf’s and Cresco’s operations.
The second problem is a bigger one.
Down the Balance Sheet
Both companies are sitting on a mountain of goodwill and intangible assets on their balance sheets. Those basically represent “synergy” or indefinable monetary advantage they have in their markets.
Meaning, they promise that their widespread and interstate operations hold value they can’t quite prove just yet.
Now, goodwill and intangible assets are not necessarily a bad thing. Many large companies declare huge amounts of goodwill. The Coca-Cola Co. (NYSE:KO) has about $27 billion in goodwill, intangible assets and trademarks. But that’s because its brands really are worth something indefinable.
For these multistate pot companies, that’s currently more of a liability than an asset. They are at risk of being forced to write-down those assets going forward.
Cresco, for instance, has $651 million in intangibles and goodwill. That’s 56% of its listed total assets. Curaleaf’s $255 million clocks in at 35% of its assets.
Trulieve, as a pretty much single state operator, carries just $30.3 million in goodwill and intangible assets… or 4.7% of its total assets.
Cannabis remains an industry under great scrutiny. And it should. But when you start digging into the numbers, you can easily tell that some companies are at greater risk than others.
But even if you are a risk-taker, finding plays in this industry that operates efficiently is still the winning equation.
Trulieve is both low risk in terms of balance sheet write-downs and efficiently profitable. That’s something neither Curaleaf nor Cresco can claim.