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Sayshu Medicherla

10 May, 13 tweets, 2 min read

Merger Monday! Quick thoughts on $TCNNF / $HRVSF deal:

1. Announced price of $4.79 implies ~$2.1bn equity value and $2.25Bn EV for $HRVSF.
2. Multiples matter in M&A. $TCNNF was trading at 10.5x 22 EBITDA and is buying $HRVSF for 15.5x 22 EBITDA...

3. Its reasonable to ask if $TCNNF overpaid for $HRVSF, but also easy to understand why it is strategic. Combined entity has instant scale in FL, AZ, and PA, and gives $TCNNF something to work with in several other states...

4. Lot of questions this morning on regulatory process and caps. $TCNNF said they think there is a path to preserve value in what they bought, which I interpret to mean that if they have to divest assets/licenses they will be able to recoup value. Really only matters in PA...

5. I was surprised it took so long for an analyst to ask about the debt. Company said it will explore options including refi or partial cash paydown. Both seem feasible. Personally, I'd like to see them refi the whole thing. ROIC better on investments vs. paying down debt...

6. $TCNNF discussed moving towards a unified brand platform over time. Will be working on brand alignment first. This is an important thing to keep an eye on over the next 24 months. Branding is the next battle for the big MSOs...

7. Company touted $HRVSF's customer analytics capabilities. I know this is something $HRVSF team was proud of in the past. Don't overlook the role of $TCNNF's SAP implementation as well. Integrating a big multi-state acquisition and overlaying analytics is why you spend on ERP...

8. $TCNNF said $HRVSF deal was made with an eye to catalysts on the come. One of those is interstate commerce. AZ is likely to be one of the lowest cost producers of cannabis and a net-exporter in an interstate world...

9. There is a lot to digest from this deal, both at the company level as well as at the macro level. $TCNNF said the deal is accretive, but just looking at the numbers it doesn't seem that way (Trulieve is GAAP Net Income +ive vs. $HRVSF which runs a loss)...

10. As I said before, its reasonable to ask if $TCNNF overpaid, but the scale and reach $HRVSF provides should help to dispel the "Trulieve is a SSO" narrative. Also, given recent deal activity, assets are becoming scarcer, so prices going up...

11. Also reasonable to ask if acquiring assets in AZ, MD, MA, NV, UT was the best use of capital (PA makes total sense). I'm sure there are $VREOF holders out there who wonder why $TCNNF didn't swing the bat on NY (this is a longer discussion)

12. Finally, interesting to see $TCNNF down on the news, although wouldn't be surprised if folks are selling/shorting to roll into $HRVSF at a discount. Merger arb folks will appreciate how juicy the spread was this morning

P.S. I know there are some questions around share count/discount. $HRVSF reported they have 436mm shares out (that could move around a bit with CoC accelerations). At 0.117 conversion ratio, $TCNNF issuing ~51m shares

Dilution* not discount

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More from @Sayshu_MM

Sayshu Medicherla

@Sayshu_MM

1 Oct

@rivers_kim

This morning, $TCNNF completed its acquisition of $HRVSF. A big moment for the company, and congrats to @rivers_kim and team for closing the deal in under 5 months. Some highlights and thoughts from their call this morning:

...

1. PF company is the largest and most profitable MSO (by a small amount on revenue and by a meaningful amount on Adj. EBITDA)
2. PF Company has 149 stores (37% more than nearest comp) and 3.1mm sq. ft. of cultivation (~2mm is in FL)
3. Core markets: FL, AZ, PA
...

4. The biggest new (and positive) thing on the call was that the PA regulator did not require any divestitures. The PF company will have 15/16 open stores in PA with the opportunity to have up to 21 stores. They will also hold 3 cultivation licenses
...

Read 12 tweets

Sayshu Medicherla

@Sayshu_MM

17 Aug

$AYRWF 2Q21 Earnings - My Takeaways:

1. Revs/AEBITDA of $91.3m/$27.4m vs. est. of $90.7m/$27.7m. Basically in-line; small misses on AEBITDA and margin
2. Adj. GMs and AEBITDA margins down 40bps/140bps QoQ. Some changes to GM calc that lifted #s
...

3. Guidance in focus. 3Q guide of $100mm revs and flat AEBITDA might've left some folks a little disappointed, but this was always going to be a 2022 story. 3Q guide incl. a little of NJ, anticipating acq close in 3Q. So, Co guiding to muted QoQ organic growth in 3Q...

4. While 3Q a little muted, Company raised 22 guide to $800m/$300m revs/AEBITDA vs. $725m/$300m previously. The jump in revs partly attributable to recent acquisitions (IL, NV, Levia bevs). Flat AEBITDA guidance implies some further investment. Could also suggest competition
...

Read 10 tweets

Sayshu Medicherla

@Sayshu_MM

12 Aug

$TCNNF 2Q21 Earnings - My Takeaways:

1. Revs/AEBITDA of $215.1m/$94.9m vs est. of $205m/$92m. Solid beats. 44% AEBITDA margins
2. Real story around gross margin. GMs compressed 300bps from 70% in 1Q21 to 67% in 2Q21
...

3. Company cited 2 main factors in FL: a) price discounts in response to competitors aggressive actions and b) tighter labor markets. CFO said without these two factors, GMs would've been 71%. Glad they quantified it, but I'd take the 71% with a grain of salt...

...given it feels like some of these pricing dynamics could linger for a while. Kim mentioned the discounting started in back-half of 2Q, then eased, and has now picked back up. She also said its not always the same player(s) discounting. Seems to be rolling behavior...

Read 18 tweets

Sayshu Medicherla

@Sayshu_MM

11 Aug

$GTBIF 2Q21 Earnings - My Takeaways:

1. Revenue and AEBITDA of $222m/$79.3 vs. $207m/$74.3m estimate (unadj. EBITDA down slightly QoQ). Nice beat on topline.
...

2. GMs were 55.4%, down 160bps QoQ driven by investments in cultivation and brand distribution. CFO said these investments will continue. Company focused on keeping GMs above 50% level, but sounds like excess will be reinvested for foreseeable future (not much upside NT)
...

3. CPG and retail grew 13%/15% QoQ. Over time we should expect to see CPG grow faster and become a bigger part of the mix. Company mentioned spending more cash on brand investments.
...

Read 12 tweets

Sayshu Medicherla

@Sayshu_MM

10 Aug

$VRNOF 2Q21 Earnings - My Takeaways:

1. Revs and AEBITDA of $199m/$81m vs. est. of $188m/$81.5m. GMs declined to 50%, and unadj. EBITDA margin was 26% and AEBITDA margin was 41%
2. Lots to unpack in the report, incl some one-time impacts from M&A and accounting changes
...

3. First, on 1Q call company guided to "near" $200mm in revs for 2Q, and said unadj EBITDA margins should be in low-40s range with some potential volatility as acquisitions are integrated. By this measure, Company did what they said on revs, and EBITDA indeed showed some vol
...

4. I was impressed by how mgmt tackled the margin issue head on and appreciated them quantifying the various impacts:
- 300bps from inv. step-up (1x)
- 300bps from accounting treatment of change in cultivation practices (1x?)
- 200bps from Agrikind acq. slipping from 2Q to 3Q
...

Read 15 tweets

Sayshu Medicherla

@Sayshu_MM

9 Aug

$CURLF 2Q21 Earnings - My Takeaways:

1. Revenue and AEBITDA of $312m and $84m vs. est. of $308m and $83.3m. Unclear if est. included the $5mm of EMMAC revs
2. EBITDA margins showed nice sequential improvement (total +300bps; US-only +400bps). GMs also up
...

3. 27% total EBITDA margin on track to hit 30% guidance in 4Q. Sounds like GM upside more muted in near term
4. Left 2021 guide unch. Some conservatism, perhaps
5. $CURLF has $100mm annualized revs in 5 states w/ 2 more joining that group soon
...

6. Expects NJ to start AU sales in 4Q, CT to start AU in 2Q22, and NY to start AU in 2023 (echoing $GTBIF)
7. Expect PA and MD to legalize AU by 2023. This would be a boon to several operators
...

Read 10 tweets

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