Buy Green Thumb Industries for a double, says GMP Securities

GMP Securities analyst Robert Fagan likes the new debt financing closed by US cannabis play Green Thumb Industries (Green Thumb Industries Stock Quote, Chart CSE:GTII), which should now have upwards of $150 million to accelerate its platform development.

Vertically-integrated cannabis company GTI last Thursday announced it has closed on a $105-million non-brokered senior secured note financing, with the non-convertible notes having a three-year maturity and carrying a 12-per-cent coupon. Management has said that it will use the funds to support its build-out along with the repayment of the company’s existing debt of $7.2 million. (All figures in US dollars unless noted otherwise.)

“Strategic capital allocation is fundamental to the business and this financing strengthens our balance sheet at an attractive cost of capital for our business and shareholders,” said founder and CEO Ben Kovler, in a press release. “We are well-positioned to capitalize on the attractive market opportunities in front of us. The proceeds will fuel our aggressive growth plans for faster route-to-market in key markets like New Jersey, as well as pursue expansion opportunities that broaden the reach of our brand portfolio.”

In a note to clients Thursday, Fagan calls the impact of the event a positive for the stock.

“With several other multi-state operators issuing convertible debentures recently, we view the straight debt structure of GTI’s financing as refreshing and positive for shareholder value creation. While the coupon at 12 per cent is somewhat higher than the roughly eight to ten per cent yield seen for some other convertible financings, this is not excessive in our view to offset the lack of a conversion option for debt purchasers,” says Fagan.

The analyst expects that GTI will be devoting some of the funds to speeding up capacity expansions in the states of Illinois, Pennsylvania, Maryland and Florida, opening up additional stores in Pennsylvania, Nevada, California, Ohio and Florida and setting up for launches in New Jersey and New York. Fagan calculates that after taking care of the expansions, GTI will likely have about $75-$100 million for further M&A activity.

The analyst is maintaining his “Buy” rating and C$32.00 target price, which represented a projected 12-month return of 104 per cent at the time of publication.