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Why Is Beacon Securities Bullish on Green Thumb Industries?


Jan. 6 2020, Published 12:19 p.m. ET

Green Thumb Industries (GTBIF), a US-based cannabis company, celebrated the new year by launching edible products and its new store in Illinois. While 2019 ended with a lot of struggles for the cannabis sector, 2020 could be a good year. Despite being a small company when it comes to market capitalization, Green Thumb has positioned itself well in the US cannabis market. Beacon Securities is also bullish about the stock and the company.

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Beacon Securities is bullish on Green Thumb Industries

On January 3, Cantech Letter stated that Beacon Securities analyst Russell Stanley is bullish on Green Thumb Industries. He thinks that with the new store in Illinois, Green Thumb has marked its retail footprint in the state. He said, “Green Thumb’s 40 stores give it the second largest dispensary footprint amongst MSOs in the United States, positioning the company to continue executing on its distributing-brands-at-scale strategy.”

Recently, Green Thumb Industries announced the opening of Rise Joliet—its first recreational marijuana store in Illinois. After the launch, Green Thumb’s founder and CEO, Ben Kovler, said, “January 1 was a historic day in Illinois as adult-use cannabis sales launched in Illinois, and we’re honored that Rise Joliet is part of that history. Our stores that sell to all adults 21+ – Rise Mundelein, Rise Canton, Rise Joliet, and 3C Joliet – have served thousands of people so far and the energy and enthusiasm from new customers has been overwhelming.” The company operates six stores in Illinois including Rise Joliet.

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Green Thumb’s growth strategies

Marijuana became legal in Illinois on January 1. Illinois became the 11th US state to legalize cannabis. Recently, I discussed how Illinois’ revenue department hopes to earn $57 million in new tax and fee revenue in fiscal 2020 from cannabis sales. Cannabis companies will benefit this year due to driving the revenue and profitability from edibles expansion. The demand for edibles is high in US states. Notably, Illinois is the sixth-largest state in the US and the second-largest state for the recreational marijuana market.

Before 2019 ended, Green Thumb also announced the opening of Rise Lakewood—its 39th store and Ohio’s first cannabis store. The company also opened stores in New Jersey and Pennsylvania. Currently, Green Thumb operates 13 manufacturing facilities, holds licenses for 96 retail locations, and has operations across 12 US markets.

The demand for the edibles market and Green Thumb’s strong presence in the state and the nation could push its revenue and profitability in fiscal 2020.

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Analysts’ estimates for fiscal 2020

For the fourth quarter of fiscal 2019, analysts expect Green Thumb to report 266% YoY (year-over-year) growth in its revenue to $76.1 million. For fiscal 2019, the revenues could be around $217.2 million compared to $62.4 million in fiscal 2018. The company could report a positive EBITDA of $14.9 million for the fourth quarter. Also, for fiscal 2019, the EBITDA could be around $34.7 million.

For fiscal 2020, analysts expect double growth in the revenue and adjusted EBITDA to $481.6 million and $125 million. The bullish outlook could be due to launching edible products and expectations of the federal legalization process to ramp up in the US this year. Beacon Securities analyst Stanley thinks that Green Thumb will generate $471 million in revenue. Also, the adjusted EBITDA could be around $127 million. Stanley said, “At current levels, the stock now trades at approximately 7.3x our F2021 EBITDA forecast, representing a six-per-cent premium to the 6.9x average for US operators, and a 46-per-cent discount to the broad peer group average of 13.4x.”

Obtaining a positive EBITDA was a challenge for Canadian cannabis companies last year. The most significant players, Canopy Growth (CGC) (WEED) and Aurora Cannabis (ACB) reported negative EBITDA in their recent quarters. Aphria (APHA) was the only cannabis company that reported a positive EBITDA in its recent quarter. Canopy Growth could still report a negative EBITDA of 446.9 million Canadian dollars in fiscal 2020. Aurora Cannabis isn’t expected to report a positive EBITDA in fiscal 2020. The company could report 104.5 million Canadian dollars.

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Analysts’ target price and recommendations

Cantech Letter said that Beacon Securities analyst Stanley reiterated his “buy” rating on the stock. He also maintained the target price of 24 Canadian dollars.

Currently, 14 analysts cover Green Thumb stock. Among the analysts, 12 recommend a “buy,” and two recommend a “strong-buy.” Analysts have given the stock a target price of 23.7 Canadian dollars for the next 12 months, which represents a 100% upside potential for the stock as of yesterday’s closing price. The stock closed at 11.9 Canadian dollars on January 5. Meanwhile, Aurora Cannabis has a target price of 4.8 Canadian dollars.

Green Thumb stock lost 17.4% last year. Meanwhile, Aurora Cannabis stock and Canopy Growth stock lost 58.7% and 27.0%, respectively. As of January 3, Green Thumb has fallen 6.8% in 2020. Aurora Cannabis stock has fallen 7.4%, while Canopy Growth has fallen 5.6%. Aphria has also fallen 4.9% in January, respectively.

For more information on the cannabis sector, visit 420 Investor Daily.


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