Green Thumb Industries has 54 per cent upside, Echelon Wealth says

Cannabis company Green Thumb Industries (CSE:GTII) came through with a strong second quarter, says Echelon Wealth Partners analyst Russell Stanley, who on Tuesday reiterated his “Speculative Buy” rating and C$20.00 target price.

Green Thumb announced its Q2/18 financials, which featured a 291 per cent year-over-year revenue increase to $13.6 million, representing a 25 per cent uptick from the previous quarter. (All figures in US dollars unless noted otherwise.)

“The second quarter was a critical quarter for GTI,” said founder and chairman Ben Kovler. “We became a publicly-traded company on June 13th. The team has been hard at work and that is reflected in the results for our first reporting period as a public company – generating solid revenue growth, raising capital, entering new markets and attracting top talent.”

Stanley says he views the quarterly report positively, as GTI’s revenue came in slightly higher than his $13.0 million estimate, while its Adj. EBITDA of $0.5 million was well above his forecasted loss of $3.0 million.

Stanley says that Green Thumb is trading at a discount to its Canadian peers.

“The EV/C2019E EBITDA multiple discount for US operators relative to Canadian operators has reached 66 per cent (relative to the measurement period average of 38 per cent), with US operators trading at approximately 16x EV/C2019E EBITDA vs. the 47.7x that Canadian operators trade at (all based on consensus estimates),” says Stanley in a note to clients on Tuesday. “We believe US operators offer compelling valuations, particularly given the de-risking underway at the federal level.”

Stanley also points to the recent news that the state of Illinois —Green Thumb’s core market at 78 per cent of last year’s revenue— just passed into law the Alternative to Opioids Act, which GTI management has said will have “a material impact on demand.” The analyst views this as a major positive development for GTI. Potential upcoming catalysts, says Stanley, include expansion updates, further regulatory developments, further M&A activity and the company’s Q3/18 results in November.

At the time of publication, Stanley’s C$13.00 target represented a projected return of 54 per cent.