Green Thumb Industries’ “impressive” results keep $32.00 target at GMP

Top and bottom line beats are the scuttlebutt around Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) whose just-released quarterly earnings have GMP Securities analyst Robert Fagan impressed by the company’s operational track record and hinting that a target raise could be in the works.

In an update to clients on Thursday, Fagan reiterated his “Buy” rating and C$32.00 target, which represents a projected return of 171.4 per cent at the time of publication.

US multi-state cannabis operator Green Thumb released its second quarter ended June 30, 2019, financials on Wednesday, where it boasted revenue growth of 228 per cent year-over-year to $44.7 million (60 per cent better than in the previous quarter), driving, says management by organic growth across its consumer products and retail businesses along with strategic acquisitions and increased store traffic. (All figures in US dollars unless where noted otherwise.)

“We are pleased to report another solid quarter of positive yet disciplined momentum with record revenue and positive adjusted operating EBITDA as our strategic plan delivers on operating efficiencies from scale. Continued execution of key priorities such as the closing of Integral Associates, accelerated store openings, and expanded distribution of our brand portfolio sets us up well for the future,” said founder and CCO Ben Kovler in a press release.
Green Thumb posted a net loss for its Q2 of $22.2 million, compared to a loss of $9.7 million in the previous quarter, and an adjusted EBITDA gain of $5.7 million (excluding biological assets). Current assets of the company totaled $189.2 million including cash and cash equivalents of $135.8 million, with total debt outstanding at $96.3 million.

Green Thumb Industries results well ahead of Fagan’s expectations

Fagan says the $44.7 million in sales was well ahead of his $38 million estimate and the Street’s $39 million, while the $5.7 million in EBITDA marks the first profitable quarter for the company and beat both his estimate of $4.6 million as well as the consensus $0.2 million. The company’s gross margin of 54.6 per cent Fagan calls solid.

“In our view, GTII’s impressive Q2 results further reinforce its MSO-leading operational track record,” writes Fagan. “In addition, GTII’s advanced platforms in several high-growth end-markets (MA, IL, PA, etc.) point to a robust outlook. We note we have yet to reflect IL REC sales in our forecasts, where GTII is strongly positioned amongst peers. This could translate to target price upside of ~$5– $7/share, reflecting the highest valuation torque to IL REC amongst our covered names,” he writes.

In his note, the analyst makes a point of singling out both the product quality that GTII is putting out, saying that it’s a key contributor to growth, and Green Thumb’s emphasis on compliance and risk mitigation, which he says is an important differentiator in the highly regulated, highly complex operating environment in the US cannabis space.

Fagan has tweaked his estimates, revising fiscal 2019 slightly lower due to expected increased SG&A as the company doubles down on capacity expansion. He is now calling for fiscal 2019 sales and EBITDA of $219.3 million and $40.2 million, respectively, and fiscal 2020 sales and EBITDA of $485.3 million and $184.3 million, respectively.