Why is this Billion Dollar Hemp Stock Beating the Market?
At a time when most cannabis and hemp companies are struggling with a lack of profitability, massive cash burn rates, and piles of debt – there are a only few that stand out as exceptions. These exceptional cannabis companies quickly become the most trusted stock picks for long-term investors. We believe that Green Thumb Industries (OTC: GTBIF) belongs in this category – but why is this billion-dollar hemp stock beating the market?
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GTBIF’s burgeoning profit and revenue – especially amid the COVID crisis- have certainly piqued the interest of many cannabis investors. In fact, the hemp stock has nearly quadrupled in value since it’s March low. This Illinois-based pot producer operates in the US and has indeed benefitted from the growing demand for medical and recreational cannabis in the region during the pandemic. According to a recent article by New Frontier Data, the states with legalized cannabis have seen a 23% surge in average expenditure since January 2020.
That’s all well and good but why is this hemp stock beating the market?
Robust Operations Across the USA
Green Thumb has extensive operations across the U.S. with 13 manufacturing facilities and a vast network of retail outlets operating across 12 unique markets. Green Thumb sells a majority of its cannabis products through its retail outlets: Rise, Essence, Bluepoint, FC, and FP Wellness.
The pot stock is currently focussing on the prospects of Cannabis 2.0. Its consumer packaged products include products such as vape pens, CBD cosmetics, cannabis strains, cannabis flower, edibles, and more. According to its Q2 numbers, Green Thumbs’ revenue from consumer-packaged products climbed 21.6% on a sequential basis. The retail business and consumer packaged sales across Pennsylvania and Illinois have fuelled significant revenue growth for the company.
Continued Expansion to Fuel Future Growth
The cannabis company is now on an expansion spree. This year alone, the company has added six additional retail stores bringing its total retail storefronts to 48. Green Thumb is also strengthening its footprint in Illinois – one of the more exciting younger cannabis markets – and has opened its eighth store in the state. Since recreational cannabis was legalized in Illinois in January – there has been a significant spike in demand and GTBIF is certainly capitalizing on the opportunity.
In response to the current pandemic situation, Green Thumb is also expanding its digital storefront with its e-commerce business. Besides this, the marijuana player is also focussing on tourist hotspots like Las Vegas for increased sales. The company has also expanded to Ohio and Pennsylvania and Green Thumb now has license approvals for opening 96 retail stores.
Apart from the retail front, the company is focusing on expanding its processing capacities too. Green Thumb recently completed the construction of its Toledo Processing Facility in Ohio in July. The company also expects to complete the construction of its facilities in Illinois and Pennsylvania by end of Q3.
Robust Financials and Operating Profit Gives GTI the Edge over Competitors
The biggest strength of Green Thumb lies in its robust financials. In Q2 2020, the company’s revenue experienced an astounding 167.5% growth as compared to the same period last year. Notably, the company’s total revenue in the six months of 2020 far exceeded its annual revenue of 2019. The sales volume across sixteen of its retail stores soared 75% compared to the prior-year period.
What is unique about Green Thumb is its consistently increasing margins. Its gross margin expanded to 53.2% as against 48.1% in the second quarter of 2019. In addition to this, the company is working towards increasing its operating efficiency. It’s general and administrative expenses have reduced considerably this year and Green Thumb has successfully turned the tide. The company posted an operating profit against a loss posted in the same period last year. Its adjusted operating EBITDA soared 145% year-on-year to $35.4 million.
Strong Cash Position Adds to GTI’s Allure
The improvements are not just limited to the company’s operating profit. Even Green Thumb’s cash position is incredibly encouraging. Similar to its cannabis industry peers, the company primarily relies on debt financing for its growth initiatives. However, a strong cash position shows that Green Thumb is well equipped to pay off debt or finance growth initiatives immediately.
The hemp stock’s outstanding debt obligations for the next 12 months are over $90 million, whereas its cash and cash equivalents at the end of the second quarter is more than $80 million. It is worth noting that the company had $46 million in cash at the end of December 2019.
The powerful combination of operating profit and robust liquidity makes the company more confident about meeting its debt obligations. Besides this, Green Thumb’s cash balance will also help it to finance its continued manufacturing and retail capacity expansion.
Cannabis Investors are Upbeat the Future of GTI
Pablo Zuanic, the analyst from the highly respected Cantor Fitzgerald firm is particularly bullish on the hemp stock. According to Zuanic, the pot company’s EBITDA margin (above 30%), combined with its brand strength, would boost its EBITDA multiples to a minimum of 20 times.
Legalization of recreational cannabis and strong sales growth are some of the other factors that play in its favor. The analyst has raised its price target on the stock from $27 to $29 and reiterated a strong ‘Buy’ rating. The Wall Street Journal recently adjusted the price target for GTBIF as well to a high of $32.17. The hemp stock is currently trading around $14/share so there’s still plenty of room for investors to benefit from investing in GTI stock.
The COVID-19 situation has crippled many industries (minus Tech, of course) and caused unprecedented volatility in the markets. However, with the rising demand for medical and recreational marijuana and hemp, Green Thumb Industries is all set to flourish. The stock has returned more than 50% since the beginning of this year and its momentum is set to continue. If you’re looking for a strong buy and hold hemp stock, we believe GTI is a solid bet.
Why is this Billion Dollar Hemp Stock Beating the Market?
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