A win for Green Thumb Industries (Green Thumb Industries Stock Quote, Chart CSE:GTII) in New Jersey is a great sign for the company’s investors, GMP analyst Robert Fagan says.
On Monday, GTII announced it had won a processing and retail license from the New Jersey Department of Health, making it one of six winners from a field of 146 applicants.
“We look forward to serving the people of New Jersey who deserve access to the highest quality products and patient care available as they seek relief with medical marijuana,” Green Thumb CEO Ben Kovler said. “Expansion in New Jersey is firmly in line with the company’s strategic goals of increasing its footprint in limited licence markets and distributing brands at scale.”
Fagan detailed the economics of the win for GTII.
“NJ regulations require that ATCs vertically integrate, while wholesaling is not allowed. This provides attractive economics for GTI’s potential operations in the state, with EBITDA margins capable of reaching ~60%. Even with the addition of six new licensees, overall supply in NJ is expected to remain relatively tight in the near to medium term, which should provide good support for pricing (~$5,000/lb at retail). We note GTI was awarded its right to pursue an ATC permit in the Northern region of NJ, the most attractive in our view given its current total supply of 12,112 ounces is the lowest in the state on an absolute basis and relative to its population of 3.7m people and patient base of 10,605. Assuming a daily consumption rate of 0.3 grams, the current demand in the Northern region could be ~41,000 ounces annually.”
In a research “flash” update to clients today, Fagan maintained his “Buy” rating and one-year price target of $32.00 on GTII, implying a return of 161.2 per cent at the time of publication.
The analyst says this win says a lot about Green Thumb’s ability to execute.
“The NJ licensing process was highly competitive with 103 applicants, some of which applied for multiple regions within the state. With GTI out-scoring other well-resourced public competitors, we think this speaks to the strength of the company’s operational expertise and execution capabilities. GTI’s license win in NJ also follows eight dispensary license wins in NV by the recently acquired Essence. We note the potential ROIC generation of organic platform expansions can be significantly higher without the requirement to acquire costly licenses to operate.”