How Do Trulieve’s Recent Debentures Compare to Its Earlier Offering?

Trulieve's (CNSX: TRUL) stock price has increased after the announcement of an exclusive supply deal with Slang Worldwide. Will it hold?

Trulieve [stock_market_widget type="inline" template="generic" color="default" assets="TRUL.CN" markup="(CNSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] announced this morning they will propose an offering of debenture units under its base shelf prospectus. While the full terms of the offering haven’t been released, the senior secured notes will mature in 2024 with an interest rate of 9.75%.

Canaccord Genuity Corp will act as the exclusive agent on a “best-efforts” basis. While it may appear the company is hard up for investors, this is the exact way they completed a $70 million private debt placement in June of this year.

Trulieve indicated they will be filing a supplemental prospectus to the one filed earlier this year. As of the press release, the use of proceeds will be for “capital expenditures, acquisitions, and general corporate purposes”.

Debt Round 1

The interest rate of these debentures is the same as the earlier offering, 9.75%. The notes were payable semi-annually, in equal instalments. At the time, purchasers of those units also received 21 warrants for subordinate voting shares, for a potential maximum of 1,470,000 shares.

The warrants are exercisable at C$17.25 for a period of three years following the closing date. This represented a premium of ~20% from the stock price on June 18, 2019.

Right now, those bonds (TRUL.DB.U) are trading at 93 cents on the dollar, with a bid/ask of 93/96.45.

While it might seem strange for investors to pay a premium for new bonds, realistically supply matters. Right now, trading volume is low on the currently outstanding bonds, making it difficult for investors to find any to buy.

If you can’t buy discounted 9.75% bonds your only other option to gain exposure to the debt of Trulieve is to buy these new bonds at 100 cents on the dollar.

Our Take

Trulieve has the strongest financials in the cannabis sector and we think this debt offering will be well received by investors looking for a lower risk way to participate in cannabis.

They are focused on operations and not just acquisitions or growth for growth’s sake. They have solid margins, a war chest filled with cash, and their operations are cash flow positive.

Right now the company is investing heavily in new markets as well as internally. After releasing updated guidance, they continue to pursue impressive revenue and EBITDA targets. The numbers show they have found a recipe for success in Florida; they are looking to both build on that and also replicate it.

Although subjective, we believe they are one of the few cannabis companies that can raise non-convertible debt in this market.

While they are not hard up for cash right now, they may see a window right now to raise the cash they need to finish construction in newly entered states. Year to date, they are outperforming peers, up 15%, while peers Cresco Labs and Curaleaf are -6% and 2% and the HMMJ index is down -29%.

With year-end financials (and more strict auditing) on the way, write-downs are coming for many companies. Trulieve may be making the most of their solid performance and current stock price before things get even worse for the cannabis industry.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Evan Veryard
Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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