Trulieve Cannabis Corp. (TCNNF)

The glaring problem here and with all cannabis companies is IRC Section 280(e). Looking at the most 2nd quarter results, TCNNF's effective tax rate is 216% of book operating income. TCNNF's tax provision was 44,769,000 and it's profit before taxes was 20,748,000. No business can last long when the government is taking twice your book profit. Of course, the only solution to that is federal legislation either by de-scheduling or moving to another category that is not subject to Section 280(e) such as Schedule III. Passing SAFE will only be a short-term help with the share price which many of us are desperate to see. I think if would start a process that would lead to de-scheduling. However, the long-term solution is de-scheduling or changing to a drug classification level does not invoke Section 280(e). This section of the code was originally enacted in response to a drug trafficker in 1982 asserting the right to deduct all business expenses available under the law at the time. In general, IRC Section 280(e) limits the deductions of cannabis based business to the cost of goods sold. Clearly this provision was not enacted to apply to situations where Cannabis (recreational or medical) is legal under state laws.

A few takeaways from today's conference call.
1) Macro economic issues are affecting all MSOs, but Trulieve is adapting well.
2) Top line revenue growth for 2H 2022 may be flat compared to 1H, but management expects strong operating cash flow through the end of the year. They predict positive free cash flow in 2023.
3) Customer traffic increased 6% in Q2, but "basket prices" decreased 3% as more customers opt for value products. Value products are no less profitable to Trulieve than high-end products.
4) The company is closing operations in Nevada and California (1 store) and focusing on retail sales from vertically integrated production in "high conviction markets."
5) Management is focused on profitability, not just growth.
6) They expect M&A opportunities from distressed assets soon. They will analyze these carefully.
7) Kim is optimistic about Georgia, and the company is planning for operations there.
8) The new 750k SF production facility in Florida is partially functional now and expected to be fully functional later this year. It will be the largest C production facility in the USA and will allow them to retire other less productive facilities.

$MSOS, $AYRWF, $CCHWF, $CRLBF, $CURLF, $GTBIF, $JUSHF, $GRWG, $TCNNF, $TRSSF, $VRNOF.
25 days ago I posted the following:
“IMO From a technical analysis basis ALL MSO stocks are in BUY status”
As of Friday’s (8/5/22) close the entire MSO group is again in BUY status.
I think that a solid short term bottom is in. The stocks are reacting positively to the news from the Feds, good news from GTBIF, bad news in a couple of cases has not cratered the group, e.g. GRWG bad earnings.
announcement, even VRNOF it’s “restatement” is on the mend. I think the longs can breath a small sigh of relief as the selling pressure seems to be abating. The upcoming earning reports I think will be well received.