Is Green Thumb a Good Buy in December 2019?

Green Thumb Industries (GTII) (GTBIF) is a cannabis CPG (consumer packaged goods) company and retailer with headquarters in Chicago, Illinois. The company is targeting an addressable market population of 151 million across 12 states in the US. Green Thumb’s major consumer cannabis brands include Rhythm, The Feel Collection, Dogwalkers, Beboe, and Incredibles. The company currently has 13 production facilities, 96 retail licenses, and 34 open stores across the US.

Green Thumb stock is down YTD (year-to-date) by 10.34% on CSE (Canadian Stock Exchange). On December 23, the stock closed 52.77% below the 52-week high of $22.02 Canadian dollars. The stock is down by 16.80% from $12.50 Canadian dollars on November 29 to $10.40 Canadian dollars on December 23.

Also, Green Thumb stock was down YTD by 1.13% on US OTC (over-the-counter) exchange. On December 23, the stock closed 52.40% below the 52-week high of $16.68. The stock is down by 14.62% from $9.30 on November 29 to $7.94 on December 23.

Green Thumb beat revenue estimates in the third quarter

In the third quarter, Green Thumb reported revenues of $67.99 million. This implied a YoY (year-over-year) growth of 295.95% and sequential growth of 52%. Also, revenues were ahead of the consensus estimate by $7.57 million.

On June 5, the company completed the acquisition of Integral Associates. This deal gave Green Thumb entry into California’s retail market. Also, the company now has a solid brand distribution presence in Nevada. Excluding revenue contribution from Integral Associates, Green Thumb reported 30% sequential growth in sales of consumer products and retail businesses. The company benefitted from almost doubling of the Pennsylvania market on a YoY basis. Green Thumb has guided for fiscal 2019 revenues of $200 million.

In the third quarter, Green Thumb reported adjusted EBITDA of $14.0 million, ahead of the consensus estimate of $7.5 million. However, the company reported a loss of $0.08 per share, worse off than the consensus estimate by $0.03.

How is Wall Street pricing Green Thumb?

A total of 14 analysts are covering Green Thumb as of December 24. Here, two are rating the company a “strong-buy,” and 12 are rating it as “buy.” Also, the analysts gave the stock a target price of $23.79 Canadian dollars. This implies an upside potential of 128.75% compared to its last closing price.

In November, 12 analysts covered Green Thumb. Of these, two rated it a “strong buy,” and 12 rated it a “buy.” They set the target price at $24.14 Canadian dollars.

GMP Securities is very optimistic about the company

On November 21, as reported by CANTECH LETTER, GMP Securities analyst Robert Fagan reiterated his “buy” rating for Green Thumb. Also, Fagan set the target price at $32 Canadian dollars. The analyst highlighted the company’s Q3 revenue performance and continued operational excellence as key positives for the company. Also, the company beat Fagan’s revenue estimate of $64 million and adjusted EBITDA estimate of $12.6 million.

Further, Fagan highlighted the EBITDA contribution of the company’s Essence brand, added through the Integral Associates deal. In the third quarter, the Essence brand accounted for half of Green Thumb’s adjusted EBITDA. This implies a solid EBITDA margin expansion for the company.

The analyst also highlighted the company’s focus on cost optimization and operating leverage. This is evident from Green Thumb’s robust EBITDA margin, despite having underdeveloped operations in New Jersey. These are not yet contributing meaningfully to the top line.

Fagan expects the company to prove to be one of the best-performing MSOs (multi-state operators) in the long-term. He is impressed with the company’s robust product portfolio, effective cost management, and balance sheet flexibility.

The analyst reduced the company’s fiscal 2019 revenues estimate from $221.5 million to $217.5 million. However, he increased the fiscal 2020 revenue estimate from $470.8 million to $483.2 million. Also, Fagan reduced his adjusted EBITDA estimate from $51.3 million to $35.3 million for fiscal 2019. He also lowered the estimate from $184.3 million to $164.6 million for fiscal 2020.

Echelon Wealth considers Green Thumb a “Top Pick”

On October 3, as reported by CANTECH LETTER, Echelon Wealth analyst Matthew Pallotta called out Green Thumb as a “Top Pick” in the cannabis sector. He rated the company as “buy” and set the target price to $24 Canadian dollars.

The analyst highlighted that the company has enough capital to fund its planned expansions. This is important considering that many MSOs are facing a cash crunch in times when it is pretty challenging to raise capital. The analyst further expects Green Thumb’s strong balance sheet to enable the company to sustain its growth plans without opting for equity dilution or excess debt. He even expects the company to opt for tuck-in acquisitions at very low prices.

Matthew Pallotta claimed that Green Thumb already completed all announced mergers and acquisitions. Hence, the company is not exposed to risks associated with regulatory approvals and uncertainty related to the completion of these deals. Additionally, he expects the company’s stock price to decouple from those of the broader sector in the future months.

Beacon Securities and Cowen are positive for the company

On November 15, as reported by CANTECH LETTER, Beacon Securities analyst Russell Stanley reiterated “buy” rating for Green Thumb. The analyst set a target price at $24 Canadian dollars.

On November 12, Green Thumb announced the completion of sale and leaseback transactions for its cultivation and processing facility at Danville, Pennsylvania, with Innovative Industrial Properties (IIPR). The purchase price is set at $20.3 million. Further, IIPR agreed to reimburse the company up to $19.3 million for planned property improvements aimed to improve production capacity. Hence, GTII will get up to $40 million, which will strengthen its balance sheet. At the end of the third quarter, the company had $66 million in cash on its balance sheet.

Russell Stanley claimed that the deal will increase GTII’s balance sheet flexibility. Further, the balance sheet strength can enable the company to expand production capacity in Pennsylvania. Also, the analyst is hopeful about marijuana legalization in Pennsylvania, despite opposition from the Republican-dominated legislature.

On November 21, as reported by StreetInsider, Cowen analyst Vivien Azer reiterated an “outperform” rating for the company. He set a target price of $17.50. The analyst was impressed with the company’s Q3 performance. This was superior to most US cannabis companies. He further highlighted fiscal discipline and focused execution as key positives for the company.