Green Thumb Industries is a leading US cannabis Multistate Operator (MSO) focusing on developing CPG and retail brands.

GTBIF management will be meeting with investors virtually at the Craig-Hallum Alpha Select Conference on November 17, 2020.

OUR CALL
Green Thumb Industries (“GTI”) is a leading US cannabis Multistate Operator (MSO) that employs an “Enter, Open, Scale” strategy to develop nationwide brands in the nascent cannabis industry. The company has “entered” 12 states, “opened” 50 retail locations, and is now “scaling” by expanding production capacity and executing on its licenses to open 100+ retail locations. GTI is our top pick to develop the leading cannabis product brands of the future; while most MSOs prioritize vertical operations for the margin benefit, GTI prioritizes distribution and scale—a bet we think will pay off in the long run. In the meantime, the company continues to exceed growth and profitability expectations thanks to their proven expertise at capital allocation. Q3 results once again beat all analyst revenue and EBITDA estimates as expanded production capacity in IL and PA drove a 39% sequential increase in wholesale revenues. Retail revenues also outperformed with over 65% same store sales growth y/y and 18% q/q—an acceleration from 8% q/q comps last quarter as NV and MA rebounded from their COVID lows. With flat OpEx, EBITDA grew 50% q/q, and the company put up positive Net Income for the first time as a public company despite onerous 280E taxes. As demonstrated by the recent ~$100M in share purchases by institutional investors from insiders, we think GTI is a top pick for institutions looking to gain exposure to the industry. While the vast majority of institutions are restricted from purchasing GTBIF shares due to custody/trading issues resulting from the federal illegality of cannabis, we think the 2020 election demonstrates loud and clear that federal reform is a matter of “when”, not “if”. We think a NASDAQ/NYSE uplisting is likely within the next 12-24mo and think GTBIF could be first to uplist given they already file with the SEC and report GAAP results unlike all other MSOs. Once uplisting happens and once institutional capital can freely flow into GTBIF, we expect a major revaluation of shares—we see 100%+ upside. For now, we are reiterating our Buy rating and increasing our price target to $35, which represents 23x our newly introduced 2022 EBITDA estimate of $326.7M.

INVESTMENT HIGHLIGHTS

Q3 Yet Again Beats All Analyst Estimates. Highlights Include Accelerating Sequential Growth, Operating Leverage And Positive NI. GTI reported Q3 revenues and adj. EBITDA of $157.1M and $53.2M, beating all analyst estimates, including our $129.7M and $36.6M estimates, respectively. Here are the highlights:

Accelerating Sequential Growth – Q3 revs grew 31% q/q vs 17% q/q growth in Q2. Wholesale revenues grew 39% q/q driven by production expansion in PA and IL. Retail revenues grew 29% q/q driven by 65%+ y/y comps and 18% q/q—an acceleration from 8% q/q in Q2.

Continued Operating Leverage – Despite robust top line growth, OpEx remained flat at ~$50M. Combined with GMs expanding from 53.2% to 55.4% q/q, this impressive operating leverage drove 50% q/q EBITDA growth.

Positive Net Income Despite 280E Taxes. Operating leverage also resulted in GTI’s first quarter of positive net income since becoming a public company—a truly impressive feat given onerous 280E taxes (33% of gross profit).

Eric Des Lauriers, CFA
Senior Research Analyst