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Trulieve CEO 'absorbing and digesting' the 'largest cannabis transaction to date’

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Despite momentum towards marijuana legalization, the country's biggest cannabis companies are failing to turn a profit. Trulieve Cannabis (TCNNF), which currently operates in 11 states, recently reported a net loss of $32 million. The stock is down 42.8% year-to-date.

According to Trulieve CEO Kim Rivers, the Florida-based company feels the wind at their backs after acquiring multi-state operator Harvest Health and Recreation for $2.1 billion.

"We are absorbing and digesting a very large transaction that we closed October 1," Rivers said on Yahoo Finance Live (video above). "It was actually the largest cannabis transaction to date. So we had 55% improvement quarter-over-quarter on that loss number, and that loss was attributable to one-time and non-recurring charges, including some synergies with the disposition of inefficient cultivation assets, as well as the disposal of a duplicative location. That's going to clear throughout the year and we'll get back."

Trulieve still generated over $45 million in its latest quarter. Nationwide, legal marijuana sales are estimated to reach more than $30 billion in 2022.

"We really couldn't be happier in terms of our positioning for future growth," Rivers said.

Political headwinds

Trulieve isn't the only cannabis company to have a tough 2022. Alternative Harvest ETF (MJ) is off 29% year-to date, while Canada-based Tilray (TLRY) is down 28%.

Rivers attributed these industry issues to the lack of political progress out of Washington.

"There was market exuberance early on when the Democrats took control of both the House and Senate, as well as the White House," she said. "We all anticipated there would be cannabis reform quicker at the federal level. Our expectations are down a little bit on that, although I think there is still room for incremental positive policy change here in DC.”

Currently, marijuana is still illegal on a federal level, though 18 states have passed their own laws to legalize it on a recreational level, while another 29 states have legalized it for medical purposes.

Last month, the House passed legislation that would legalize marijuana nationwide. In addition, the SAFE Banking Act — which would provide banking services to legitimate cannabis-related businesses and ancillary businesses — passed the House six times but failed to gain any traction in the Senate.

"It's disappointing when you also have a disconnect not just with the markets, but really what we're seeing in terms of what people want and expect from leadership," Rivers said. "Leadership, at least in my civics class, was here to do the will of the people, right? And when you have cannabis that is legalized and accepted in large part across our country, to have a Congress so out of touch on a simple, fundamental thing such as banking to give protection so that we don't have to hold large amounts of cash in our dispensaries."

According to the latest polling, 68% of the American population supports marijuana legalization.

Jacob Turner poses for a photograph during the Mile High 420 Festival in Denver on April 20, 2022, known by some as 'Weed Day'. (Photo by Patrick T. FALLON / AFP)
Jacob Turner poses for a photograph during the Mile High 420 Festival in Denver on April 20, 2022, known by some as 'Weed Day'. (Photo by Patrick T. FALLON / AFP)

Along with a lack of banking services, another obstacle for the cannabis industry is the inability to write off business expenses. Thanks to Section 280E of the IRS tax code, taxpayers who are engaged in the business of trafficking certain controlled substances, including marijuana, are prohibited from deducting expenses.

On top of that, major multi-state operators in the industry pay high taxes — just in the first half of 2021, cannabis retailers were on the hook for $1.2 billion in federal taxes. Rivers stated that Trulieve would have paid at least $125 million less in taxes if it had been treated as an ordinary business.

"We pay taxes the same as if we were dealing cocaine or heroin, even though our business is absolutely legal in the states in which we operate," she said.

'We're very, very bullish' on legalization

In the meantime, Rivers is optimistic that Pennsylvania and Maryland will soon join the 18 states who’ve legalized recreational marijuana.

Trulieve currently does 70% of its business in Florida, one of 38 states to allow medical marijuana sales.

More than three-quarters of the U.S. population live in a state with some form of legalized marijuana according to MJBiz.

"We have the industry-leading footprint in Pennsylvania, and would expect to see great increases there if and when it does go to adult use," Rivers said, adding: "Certainly though, the Southeast, we're very, very bullish on. Georgia's program will be opening here soon ... Alabama is working through program regulations. There's also expansion for us going on in West Virginia. So really all up and down the East Coast we think is really poised for significant growth over the next 12-24 months."

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