Green Thumb Industries: Is this Cannabis Stock a Buy?

After taking an extensive look at cannabis companies such as Trulieve Cannabis (OTC; TCNNF) and Charlotte’s Web Holdings (OTC: CWBHF), here we deep-dive into one of the top-performing hemp stocks in 2020. While most pot stocks have taken a beating this year, Green Thumb Industries (OTC: GTBIF) stock has returned close to 80% year-to-date. In fact, we’ve been recommending this cannabis stock as a “Strong Buy” for the past 18 months. We continue to see strong performance for Green Thumb Industries – But is this Cannabis Stock a Buy?

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Who is Green Thumb Industries?

Founded in 2014, GTI started operations in 2015 as it received a medical marijuana license for the cultivation and processing of cannabis products in Illinois. Since then it has expanded its footprint in 12 U.S. markets that include California, Colorado, Connecticut, Florida, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, and Pennsylvania.

The company now owns, manufactures, and distributes a portfolio of cannabis consumer packaged goods brands such as Beboe, Dogwalkers, Dr. Solomon’s, Rhythm, incredible, and the Feel Collection. It sells the brands to third-party licensed retail cannabis stores as well as company-owned retail outlets.

GTI also owns interests in multiple state-licensed medical and recreational marijuana businesses. In addition to this, it licenses intellectual property and certain brands to licensees in California and Colorado. That’s great – but is Green Thumb Industries Stock a Buy?

GTI’s Strong Revenue Growth in 2019

In 2019, GTI reported sales of $216 milion more than tripling sales year-over-year. It opened 20 new stores and more than doubled its retail fleet to 39 stores at the end of 2019. GTI closed strategic acquisitions and also expanded its employee count. At the end of Q2 of 2020, its store count has risen to 48.

In the last six months of 2019, GTI managed to report an adjusted EBITDA and aims to end 2020 with positive free cash flow. Last year, Green Thumb entered into new markets and won a cultivation and processing license in Ohio.

Over the years, Green Thumb has focused on expanding its brand production and distribution capabilities by increasing its retail footprint as well as its cultivation facilities. It claimed, “We put significant capital to work to expand capacity and improve production standardization and automation across key markets.”

The company’s Beboe brand allowed it to enter the luxury CBD and beauty market while Incredibles is one of the most popular brands in the cannabis-infused edibles space.

GTI remains optimistic about long-term growth that can be supported by its strong balance sheet and focus on optimization. In 2019, it completed several strategic financings that include $105 million in a private placement of senior secured notes and three sale-leaseback transactions with marijuana REIT Innovative Industrial Properties (NYSE: IIPR) totaling $96.8 million.

While several pot companies are struggling with liquidity in a capital-constrained market, GTI confirmed all expansion projects for 2020 are fully funded. But does that mean that Green Thumb Industries stock is a Buy?

GTI’s Strong Q2 Results

In the second quarter of 2020. Green Thumb sales rose 167% year-over-year to $119.6 million. This helped the company report EBITDA of $35.4 million, a massive increase compared to EBITDA of $2.3 million in the prior-year period. The company’s Q2 sales were primarily driven by cannabis consumer packaged goods.

Green Thumb will benefit from its huge presence in its home state of Illinois that legalized recreational cannabis in January 2020. In the first month of legalization, marijuana sales in Illinois soared to $39.2 million. In August this figure stood at a healthy $63 million.

GTI ended Q2 with $82.9 million in cash and $95.2 million in total debt. The company’s strong revenue growth and a healthy EBITDA margin of 38% will cover interest expenses and allow it to reinvest in growth as well as in the development of new products.

GTI’s revenue streams include the production and distribution of cannabis products as well as its retail business that sells these products. The two businesses and a vertically integrated supply chain have helped Green Thumb grow revenue and adapt to a volatile macro environment during 2020. GTI has a strong track record of revenue generation but should I buy this cannabis stock?

Should I Buy Green Thumb Industries Stock?

Green Thumb is one of the more established players in the U.S. with a strong market presence in multiple states. Its products are available in 96 retail locations including its own in the U.S. which has helped it more than double sales in the most recent quarter.

Green Thumb products are some of the top cannabis brands in Illinois and Nevada, two states that might touch $1 billion in legalized weed sales by 2024, indicating there is a lot of fuel left in GTI’s tank.

Further, the company generates over 65% of total sales from high-margin derivative products such as cannabis-infused edibles and beverages, which will allow it to easily expand the bottom-line and benefit from high operating leverage.

Analysts tracking Green Thumb expect the company to increase sales by 133% to $505 million in 2020 and by 47.6% to $745 million in 2021. While the company might barely break-even this year, earnings growth is forecast at 3,000% to reach $0.33 in 2021.

GTI has a market cap of $3.2 billion and is trading at a forward price to earnings multiple of 6.33x which is not too expensive given its high growth rates.

Analysts tracking Green Thumb have a 12-month average target price of $20.5 which is 34% higher than the current trading price. GTI’s robust revenue growth, widening profit margins, focus on expansion and a healthy balance sheet make it a top long-term pick among cannabis stocks and we believe this cannabis stock is a strong buy.

Green Thumb Industries: Is this Cannabis Stock a Buy?

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Green Thumb Industries: Is this Cannabis Stock a Buy?