2021 3 TOP CANNABIS STOCKS - Midas Letter

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2021 3 TOP CANNABIS STOCKS - Midas Letter
2021
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2021 3 TOP CANNABIS STOCKS - Midas Letter
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COLUMBIA CARE INC.
(OTCMKTS: CCHWF
CNSX: CCHW)
Website: https://col-care.com
Investor Relations: https://ir.col-care.com

                                                                               You could still argue that New York is just a small piece
Weighted average common shares outstanding                                     of Columbia Care’s pie. The footprint and scale of this
- basic and diluted: 264.7M                                                    company is second only to Curaleaf Holdings Inc. - trading
                                                                               at almost 5X Columbia Care’s market cap.
Market Capitalization (At market close March 31, 2019):
US$1.9B                                                                        Columbia Care has licenses in 18 U.S. jurisdictions and
Cash & Cash Equivalents: US$61M                                                operates 27 U.S. cultivation facilities with 87 dispensaries.
2020 Revenue: US$197.9M                                                        All-in-all the company has over 1 million square feet of
                                                                               production and 300 plus acres of outdoor cultivation
Y/Y Rev. Growth: 151%
                                                                               capacity at its growing disposal.4
Q4 Revenue: US$81.8M
Q/Q Rev. Growth: 51%
*as of December 31, 2020 unless otherwise stated

As New York became the 15th U.S. state to legalize
recreational cannabis for adult-use1, it begs the question
which weed stock is poised to benefit the most from
state-by-state recreational legislative change?

New York will quickly become one of the largest adult-use
markets in the nation. With a population of around 19.5
million2 , New York is touted to generate up to $7 billion in
annual sales once the market is fully established.3                                  *These picks are not in order of priority or
New York City headquartered Columbia Care Inc. could                                 expected performance. They are in alphabetical
find itself best positioned to captain the new legal Empire                          order. Do your own due diligence, and only invest
(State). The company is vertically integrated in all of the                          with the advice of a registered investment
markets it operates in and already has wholesale
                                                                                     professional in your jurisdiction.
distribution, a cultivation/manufacturing facility, and four
dispensaries in New York.

1  https://www.nytimes.com/2021/03/31/nyregion/cuomo-ny-legal-weed.html
2  http://www.populationu.com/us/new-york-population                           4   https://d1io3yog0oux5.cloudfront.net/_
3 h ttps://www.businessinsider.com/guide-new-york-legal-marijuana-timeline-        fe270c2c6e3bf48c50a3a306a395bf60/colcare/db/354/2637/pdf/
   stocks-investor                                                                  CCHW+Presentation+Q4+2020+_+vFINAL%282%29.pdf

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These impressive stats allow Columbia care to have                            The company purchased Green Solutions - the largest fully
an addressable market of over 53% of the total U.S.                           integrated operator in Colorado. Green Solutions adds 23
population. That’s a population of 173.6 million people                       dispensaries and six cultivation/manufacturing facilities
generating estimated 2021 sales of $14.28 billion - and                       that are expected to generate approximately US$88.5
that sales figure is expected to almost double to $27.86                      million in revenue and US$18.5 million in adjusted EBITDA
billion by 2026.5                                                             in FY 2020.6

The positive news for shareholders is out of the 18                           Next, Columbia Care completed the acquisition of Project
jurisdictions Columbia Care operates in, only seven have                      Cannabis. Project Cannabis creates the foundation for
full recreational legality. As discussed with the conversion                  scaled success in California. Project Cannabis adds over
of New York state, the company is well-positioned in states                   100 dispensaries to its wholesale distribution network
that could come online in the future. Florida, Pennsylvania,                  throughout California and immediately turns Columbia
and Virginia are just three examples of states that the                       Care’s Californian operations to adjusted EBITDA and cash
company has already established itself within for the                         flow positive.7 California is the world’s largest cannabis
medical market - these states will have significant upside                    market with annual sales above $4 billion. Expect California
potential if the states were to eventually allow recreational                 to be one of the biggest stories with MSOs this year.
sales - let alone federal de-prohibition.
                                                                              As mentioned, the two previous acquisitions establish
Columbia Care made three major acquisitions in late 2020,                     Columbia Care in the two largest cannabis markets in the
which positions them for solid growth in the future.                          world, California and Colorado. But perhaps more
                                                                              importantly, its acquisition of Green Leaf Medical expands
                                                                              Columbia Care's operational scale and footprint into four
                                                                              key, limited license markets.8 The deal enhances the scale

5 https://d1io3yog0oux5.cloudfront.net/_
   fe270c2c6e3bf48c50a3a306a395bf60/colcare/db/354/2637/pdf/                  7 https://ir.col-care.com/news-events/press-releases/detail/95/columbia-
   CCHW+Presentation+Q4+2020+_+vFINAL%282%29.pdf                                 care-signs-definitive-agreement-to-acquire
6 h ttps://col-care.com/2020/09/01/columbia-care-completes-acquisition-of-   8 h ttps://ir.col-care.com/news-events/press-releases/detail/109/columbia-

   the-green-solution/                                                           care-signs-definitive-agreement-to-acquire-green

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                                                                            and capabilities of its seed-to-sale operations and
                                                                            substantially expands its footprint and operating scale
                                                                            in the Northeastern states and the Mid-Atlantic.

                                                                            The Northeastern coastal states that Green Leaf Medical
                                                                            opens for Columbia Care are the states coming online for
                                                                            legal adult consumption. New Jersey and New York were
                                                                            the most recent to be approved for recreational sales.
                                                                            Green Leaf Medical also brings vertical integration to
                                                                            Pennsylvania and Maryland, immediately positioning
                                                                            Columbia Care as a leading wholesaler in those states.
                                                                            Those two states have also already seen legislation to
                                                                            legalize recreational sales.

                                                                            Columbia Care reported 2020 annual revenue growth of
                                                                            151% up to $197.9 million, helped by its fourth-quarter
                                                                            revenue increasing 51% QoQ to $81.8 million.9 These record
                                                                            company results, along with its gross margin expansion,
                                                                            show the success of its expansion and acquisition strategy.
                                                                            The company ended the year with $61 million in cash,
                                                                            having raised $149.5 million from a bought deal public
                                                                            offering, which supports any long-term continuation of its
                                                                            growth initiatives.10

                                                                            Columbia Care has provided Pro Forma 2021 revenue
                                                                            guidance of up to $530 million. However, this does not
                                                                            include any additional revenues coming online in newly
                                                                            legalized states such as New York and New Jersey.
                                                                            With revenues expected to reach over half a billion without
                                                                            any recreational approvals, shareholders could see
                                                                            significant upside in the future.

                                                                            The company has a market cap of $1.1 billion - a valuation
                                                                            significantly cheaper than the largest MSOs. With large
                                                                            revenues and margins expected to keep improving from
                                                                            recreational successes. In the state that never sleeps,
                                                                            could Columbia Care find itself king of the hill and top
                                                                            of the heap?

9   https://col-care.com/2021/03/16/columbia-care-reports-record-fourth-   10   https://ir.col-care.com/news-events/press-releases/detail/113/columbia-
     quarter-and-full-year-2020-results-reaffirms-2021-guidance/                  care-announces-closing-of-bought-deal-public

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GREEN THUMB
INDUSTRIES INC.
(OTCMKTS: GTBIF
CNSX: GTII)
Website: https://www.gtigrows.com
Investor Relations: https://investors.gtigrows.com/
investors/overview/default.aspx

                                                                               Connecticut, Florida, Illinois, Maryland, Massachusetts,
Shares Issued and Outstanding: 213.2M                                          Nevada, New Jersey, New York, Ohio and Pennsylvania.
Fully Diluted: 217.2M
                                                                               The company’s growth strategy focuses on States with
Market Capitalization (At market close March 31, 2019):                        large populations and limited licenses. The company looks
US$6.5B                                                                        to enter States with a strong medical cannabis market
Cash & Cash Equivalents: US$83.8M                                              where recreational legalization is a real possibility in the
                                                                               future. To keep this report concise, we focus on two
2020 Revenue: US$556.6M
                                                                               specific States that we see as the key growth markets this
Y/Y Rev. Growth: 157.2%                                                        year; Pennsylvania and Illinois.
Q4 Revenue: US$177.2M
                                                                               Cannabis is still illegal for recreational use in Pennsylvania
Q/Q Rev. Growth: 12.8%
                                                                               but has a roaring medical market. Pennsylvania is the
*as of December 31, 2020 unless otherwise stated                               fifth-largest state by population and has exceeded original
                                                                               projections for patient number growth.12 The State is
                                                                               expected to bring in $1 billion in cannabis sales within the
                                                                               next three to four years.13 This makes the State the fastest-
                                                                               growing medical cannabis market in the U.S.

According to the Oxford dictionary, to possess a green
thumb relates to the natural talent of growing plants. Well,
the multi-State cannabis operator (MSO), Green Thumb
Industries Inc., may have expanded that definition simply
from growing cannabis plants to scaling its business.

Green Thumb has six brands that sell across 12 U.S. States.
The company has 13 production facilities, 56 stores, and 97
retail licences.11

Green Thumb’s brands are produced, distributed, and sold
in the following U.S. markets: California, Colorado,

11 https://investors.gtigrows.com/investors/overview/default.aspx
12 h ttps://mjbizdaily.com/pennsylvania-successful-medical-cannabis-market-   13   https://mjbizdaily.com/pennsylvania-successful-medical-cannabis-market-
  brightens-recreational-prospects/                                                  brightens-recreational-prospects/

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Another key point to outline is the high barrier to entry/                      cannabis sales were $109.1 million in March 2021 - a 204%
competition within the State regarding obtaining licences.                      increase YoY and 35% since the previous month.18 In 2020,
The State has a licensing cap limited to a specific number                      Illinois sold more than $1 billion of legal cannabis and has
of cannabis licences available. Green Thumb is one of the                       already seen an increase of 153% in sales this year
early entrants into this market and a clear beneficiary of                      compared to last. This upward trend is bound to continue.
such regulation.                                                                Green Thumb recently opened its 55th national store within
                                                                                the Prairie State.19
As more states pass bills to legalize cannabis
recreationally, you could make a case for Pennsylvania to                       It is no surprise that the last two retail openings were in
be the next candidate. Recently, lawmakers have introduced                      these two States. However, it is important to point out after
a bipartisan bill to do precisely that.14 According to recent                   these store openings, Green Thumb is one retail location
polls, two-in-three voters support allowing the sale of                         shy of reaching its retail licence limit in both of these
adult-use cannabis.15 The companies with significant                            States. With only one more available store to open in these
market share and infrastructure already in the State will                       States, shareholders will be looking for major retail growth
take advantage of any change in this regard. Green Thumb                        in other locations such as Florida and New Jersey - but will
just recently opened its 56th national retail location within                   be confident with the increase in sales and already
the Keystone State.16                                                           prominent market share within stores in PA and IL. Where
                                                                                Green Thumb can continue to expand across all of its
Illinois is another state Green Thumb has established                           markets is its wholesale business pillar.
strong retail and wholesale presence within.
                                                                                The cannabis wholesale is the other side of Green Thumb’s
Illinois became the 11th State to officially legalize                           coin, making the value proposition attractive. The company
recreational marijuana in 2020.17 Total recreational                            has invested heavily into cultivation to supply other

14  https://www.mpp.org/States/pennsylvania/
15   ttps://drive.google.com/file/d/18rM2UjQGvrqL0FHk64TR_dA-LzelHCgA/
    h
    view
16 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/   18   ttps://www.idfpr.com/Forms/AUC/IDFPR%20monthly%20adult%20use%20
                                                                                    h
    press-release-details/2021/Green-Thumb-Industries-to-Open-Rise-                 cannabis%20sales.pdf
    Meadville-in-Pennsylvania-Its-56th-Retail-Location-in-the-Nation-on-        19 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/

    March-31/default.aspx                                                           press-release-details/2021/Green-Thumb-Industries-to-Open-Rise-Lake-in-
17 https://www.illinoispolicy.org/what-you-need-to-know-about-marijuana-           the-Hills-in-Illinois-Its-55th-Store-in-the-Nation-and-McHenry-Countys-First-
    legalization-in-illinois/                                                       Cannabis-Store-on-March-31/default.aspx

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retailers. This way, Green Thumb can benefit from the sales                     acquisitions and have kept dilution to shareholders to
growth within states without having to build new stores.                        a minimum.
Green Thumb’s wholesale revenue actually grew more
than its retail revenue last quarter, 150% vs 130% growth                       CEO Ben Kovler says he is excited to start 2021 with the
respectively.20                                                                 first sale of SEC-registered shares to U.S. investors.23 The
                                                                                CEO has 26% stake in Green Thumb with nearly 59% of the
As the company completed its U.S. initial public offering                       voting power.24 With such significant ownership of the
(IPO), raising US$56 million by selling approximately 1.6                       company, any future shareholder will be pleased to know
million shares of the company21, U.S. investors will now be                     that he has an incentive to maximize the company’s growth
keen to see how robust Green Thumb’s Financial                                  into the future. As the founder of the company and its
Statements are. The company’s Q4 financial report a fourth                      stellar growth, Kovler is so far proving his thumbs are
consecutive quarter of positive cash flow from operations                       sufficiently green.
supported by a 157.2% yearly increase in revenue, and a
balance sheet current asset position of $183.9 million to
support further growth across the U.S.22

Green Thumb’s growth strategy involves organic growth
through licence applications. Unlike other MSOs, the
company has avoided state-by-state expansion through

20  https://investors.gtigrows.com/investors/news-and-events/press-releases/
     press-release-details/2021/Green-Thumb-Industries-Reports-Record-
     Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx
21 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/

    press-release-details/2021/Green-Thumb-Industries-Raises-US56000000-        23 https://investors.gtigrows.com/investors/news-and-events/press-releases/
    Selling-Approximately-1.6-Million-Shares-in-the-U.S/default.aspx                press-release-details/2021/Green-Thumb-Industries-Reports-Record-
22 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/       Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx
     press-release-details/2021/Green-Thumb-Industries-Reports-Record-          24 h ttps://www.morningstar.ca/ca/news/211008/stock-of-the-week-green-

     Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx                  thumb-industries.aspx

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TRULIEVE
CANNABIS CORP.
(OTCMKTS: TCNNF
CNSX: TRUL)
Website: https://www.trulieve.com
Investor Relations: https://investors.trulieve.com

                                                                          Its vertically integrated, seed-to-sale operation boasts a
Shares Issued and Outstanding: 113.6M                                     51% market share stranglehold across the whole state.25
                                                                          Currently, Trulieve has 79 out of the total 325 dispensing
Fully Diluted: 118.3M
                                                                          locations in Florida - which over half of the state’s medicinal
Market Capitalization (At market close March 31, 2019):                   cannabis patients frequent.26
US$5.61B
Cash & Cash Equivalents: US$146.7M                                        The total number of qualified Florida medical marijuana
                                                                          patients is just over half a million people with estimated
2020 Revenue: US$521.5M
                                                                          annual sales of around $1 billion.27 Even though Florida
Y/Y Rev. Growth: 106%                                                     doesn’t permit recreational marijuana use and sales,
Q4 Revenue: US$168.4M                                                     Trulieve’s widespread dispensary network and extensive
                                                                          delivery services have still made the company $177.2
Q/Q Rev. Growth: 24%
                                                                          million in December quarterly revenue. Florida patients are
*as of December 31, 2020 unless otherwise stated                          expected to boost cannabis sales to $2.6B by 2025 - a
                                                                          CAGR of 25.3% from 2019.28 Speaking of growth, Trulieve
                                                                          has doubled its sales every year for three years and said
                                                                          they expect sales to continue to grow by at least 60%
                                                                          in 2021.29

Florida is the home of Disney World, oranges, humidity
and Trulieve. Trulieve was the first and now the leading
medical cannabis company in the sunshine state.

The norm within the corporate cannabis industry has been
to expand operations into as many legal states as possible
- with the hope to capture the largest population of
cannabis patients/users. Trulieve has used a different
tactic that has seemingly paid off. Trulieve has used its
first-mover advantage to focus almost exclusively on the
medical market in Florida.

25  https://investors.trulieve.com                                        28   ttps://investors.trulieve.com/static-files/ed820945-78a9-44b5-8a11-
                                                                              h
26 https://s27415.pcdn.co/wp-content/uploads/ommu_updates/2021/032621-       bfe539ef420c
    OMMU-Update.pdf                                                       29 h ttps://investors.trulieve.com/events/event-details/trulieve-cannabis-corp-
27 Ibid.                                                                      fourth-quarter-2020-results

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                                                                            vertical operations, cultivation permits, and dispensaries
                                                                            in West Virginia and a cultivation/processing facility in
                                                                            Massachusetts.31

                                                                            We are still at the beginning of Trulieve’s MSO expansion,
                                                                            but future scaling opportunities across different states
                                                                            could make shareholders truly believe in the companies
                                                                            value proposition.

                                                                            We have spoken with CEO Kim Rivers a few times
                                                                            throughout the company’s history. Most recently, here
                                                                            where she discusses Trulieve’s profitability. The story
                                                                            hasn’t changed since then (in terms of business strategy),
                                                                            only grown.
Trulieve’s command of Florida cannabis, in terms of                         Kim Rivers presently owns approximately 17M shares -
footprint, brand recognition, and high-quality product                      equating her inside ownership to 13.82% of the company.32
reputation, has provided the company with solid                             With a significant equity position behind her and the fact
profitability and positive free cash flow - a rarity in the                 Ms. Rivers is the founder of the company, there is a large
cannabis industry. Trulieve’s cash-flow margins of 46%,                     incentive to keep pushing the company’s strong financial
gross margin of 60%, and customer retention rate of 79%                     performance and commitments to grow, state by state.
speak loudly to these points and the companies success in
its dedicated market.30

Trulieve has been profitable since 2017!

The legalization of recreational cannabis in Florida would
be the largest valuation catalyst in the near-to-medium
term - supposing Republican senators were to follow the
lead of many other U.S. states.

With Florida in Trulieve’s back pocket, the company has
started to expand its successful business to new U.S.
states. West Virginia, Massachusetts, California,
Pennsylvania, and Connecticut are the first markets
Trulieve aims to break into. Each of these states is
expected to see a double-digit CAGR by 2025 without
considering potential U.S. federal regulatory changes.

Trulieve’s strategy for entering these new markets is
through accretive acquisitions. Trulieve has the free cash
flow from its Florida operations to acquire existing
companies with proven operations in their respective
states. Most recently, dispensaries, 2021, Trulieve acquired
Mountaineer Holding LLC - positioning them to have

30   ttps://investors.trulieve.com/static-files/ed820945-78a9-44b5-8a11-
    h
    bfe539ef420c
31 h ttps://investors.trulieve.com/news-releases/news-release-details/     32   https://simplywall.st/stocks/us/pharmaceuticals-biotech/otc-tcnn.f/
    trulieves-national-expansion-momentum-continues-acquisition                   trulieve-cannabis#management

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                                                                     JAMES WEST
                                                                     PUBLISHER, EDITOR & HOST OF MIDAS LETTER RAW

                                                                     James West founded Midas Letter in 2008 and has since
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                                                                     his financial interests lay. Midas Letter is conceived as an
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                                                                     learn what James is investing in and why.

                                                                     ALEXANDER ROBERTS, MSc
                                                                     MIDAS LETTER ANALYST & CONTRIBUTOR

                                                                     Alexander Roberts joined Midas Letter in 2018 after
         LATEST INTERVIEWS,                     Visit the Cannabis
                                            section of the website   working in several investment service positions for leading
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