Green Thumb Industries – GTBIF (OTC)
Should You Invest in Green Thumb Industries Stock? Recommendation: See Below
Green Thumb Industries, Inc. engages in the manufacture and distribution of branded cannabis products. It operates through the Wholesale and Retail segments. The Wholesale segment includes cultivation, production, and sale of cannabis via retail stores. The Retail segment consists of trading cannabis to patients and consumers. Should You Invest in Green Thumb Industries Stock?
Fundamentals
Profile:
HQ: Chicago, IL, USA
Founded: 2002
Facilities: 12 states covering over 95 licenses
Employees: 1200
Symbol: GTII (CNSX), GTBIF (OTC)
Focus: Strong
GTI is a multi-state US seed-to-sale cannabis grower, producer, and retailer. It has a wholesale business (its Consumer Package Division, selling its brands to third party dispensaries) and a retail business (selling its own and third-party brands through its own dispensaries). It operates or is building 13 manufacturing facilities—in Illinois, Pennsylvania, Maryland, Massachusetts, and Nevada. It owns and operates 25 retail dispensaries under its own RISE, Essence and GTI brands. They are licensed for, and currently plan to own and operate, 88 dispensaries across at least 12 states, each producing on average $3.6 mil in revenue per year. They produce and sell flower, concentrates, edibles, and topicals. Though they currently wholesale much of their harvest and are expanding their cultivation, GTI has said they may not choose to be a large wholesale grower in the long term if price compression becomes an issue with that model. If that happens they will likely focus on creating brands and operating dispensaries.
Size: Strong
Market Cap: $2.1 billion
Enterprise Value: $2.2 billion
Markets: Neutral
Primary: USA, one of the larger vertically integrated operators:
-Pennsylvania: operating 6 RISE medical dispensaries), building 12
-Maryland: operating 3 medical dispensaries and a processing plant, building cultivation facility
-Nevada: operating 5 retail, building 3 cultivation/processing,
-Massachusetts: operating 3 retail, plus grow facilities
-Ohio: operating 2, building 3 dispensaries
-Illinois: 5 retail, 2 cultivation facilities, and HQ
-Florida: operating 4 dispensaries, with licenses to operate ~50
-New York: building 1 cultivation/production, 4 retail
– New Jersey: building 1 retail 1 cultivation
Secondary: Canada. GTI went public and listed its shares on the CSE, to make raising money easier. Selling cannabis there could be an option, especially with the market being federally legal.
Operations: Strong
Cultivation:
Current production: 22,000+ kgs per year
Future production: 40,000-60,000 kgs per year
Should you invest in Green Thumb Industries?
GTI operates 260,000 sf of cultivation and processing capacity, which is scalable up to 750,000 sf. They do not say what portion is grow space versus processing space. If 50-75% is cultivation space, we expect them to produce between 15,000-22,000 kgs/per year, scalable up to 40,000-60,000 kgs per year.
They grow 50 unique cannabis flower strains, geared to different consumer segments. They also process raw flower into oils, using several extraction and purification techniques (BHO, CO2, Ethanol)
Distribution:
GTI distributes in 100% of retail locations in the states they operate in, including 55 of 55 stores in Illinois, and 42 of 42 stores in Maryland. They own 25 of these and plan to expand to own 50. They serve over 100,000 patients and customers each year.
Direct sales: Yes, in store and online
Store networks: Yes. Sold in 95 retail locations
Integration/Diversification:
Vertically integrated: Yes
Horizontally diversified: No
Should you invest in Green Thumb Industries?
Financials: Neutral
Outstanding shares (diluted): 127 mil
Revenue last year: $81 mil
EPS: ($0.29)
Management: Neutral
CEO: Ben Kovler
CFO: Anthony Georgiadis
Branding: Strong
GTI brands include Rhythm, Dogwalkers, the Feel Collection, BeBoe, and others. Dogwalkers are a small tin of mini-joints designed to be big enough to enjoy “while you are walking your dog.” GTI is also planning a brand aimed at women because they feel women are under-served and there is a market.
GTI is creating a distinctive, branded consumer experience in its RISE dispensaries. According to GTI, RISE is an award-winning retail chain delivering a high level of customer service through: “high-engagement consumer interaction; a consultative, educational selling approach; and an affordable variety of cannabis products.” They create an uplifting environment… “like a bar or a café”, and strive to produce customer loyalty. They claim their RISE dispensaries have a large market share.
Valuation: Neutral
Current share price: US $10.33
Price to Sales: 13.08 (Tobacco industry Avg. = 5)
52 Week Low/High: $7.55 to $16.68
EV / Revenue: 13.49
Price to Book: 2.57
Financings: Strong
In June 2018, GTI completed a reverse takeover that enabled it to be listed on the Canadian stock exchange. At the same time, it raised US $67 million through a private placement.
In April 2019, GTI completed a private placement of $12.5 million in six-month senior secured promissory notes. The notes paid 10.5% interest.
On May 22, 2019, GTI completed another private placement, of $105.5 million, in three-year senior secured promissory notes—and paid off the notes issued on April 12, 2019. It can raise an additional $44.5 million under this credit facility within 180 days. It can also extend the financing for an additional twelve months. The notes pay interest of 12.0%. Unlike many other cannabis companies, GTI Financings are strong but Should You Invest in Green Thumb Industries Stock?
Risks: High
The risks of investing in any cannabis company are currently high given the volatility of the market. The risks of investing in this company do not seem to have more risk than other cannabis companies.
Should you invest in Green Thumb Industries?
Recommendation: Strong
There are a lot of reasons to like GTI as an interested observer. They are vertically integrated, with a focus on building brands, and creating a unique and attractive retail experience that builds loyal visitors. This supports their bid to preserve strong margins in an industry that will likely eventually experience price compression and falling margins.
They are diversified, having both a strong wholesale and retail businesses, and addressing both medical and recreational clientele. This supports them if, for example, price compression makes the wholesale side of the business less profitable. In this scenario, they could focus more on the retail side, where they own dispensaries and will be able to control retail price and shelf space in their locations.
Thirdly, their revenue has shown steady growth over the past 4 years. This is surprisingly rare among cannabis companies and shows that they are good at executing their plans and avoiding delays and setbacks.
They currently operate 25 dispensaries and plan to have 40-50 operating in a few years, roughly doubling their number. They target roughly $3.6 mil in revenue from each store. This suggests they could generate close to $180 million in revenue from their retail side in a few years.
Currently, they grow at least 25,000 kgs year, which at $6 gram generates about $125 million. When expansions are done, they expect to have a future capacity of 50,000-60,000 kgs a year. We think that $400-430 million is a good estimate of where their future revenue could be in a few years.
They also have a strong cash position (over $65 million) and appear to have excellent access to capital. This suggests they should have the money they need to invest to make their growth plans come true.
All this is promising news. But does it make for a good investment? For many, this depends on how much money they will generate in the future, versus how much revenue is baked into their current stock price.
The GTI stock price was down in 2019, just like all cannabis stocks, but is up over 30% in the last month. The price to sales is down to 13 (from 20) but is still too high for our liking. Is it too late to buy?
No. In fact, we think this is a good company that is fairly priced today for revenue the company should achieve in the coming few years.
In other words, it looks to us like a good long-term investment, not a stock that will win a race for the highest gains in the next year or two. Instead, one that will produce an even-handed long term increase for long term investors.
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