Green Thumb Industries is best in class, GMP says

A decisive quarterly beat and continued operational excellence are the markers for US MSO Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII), according to analyst Robert Fagan of GMP Securities.

Fagan reviewed Green Thumb’s latest quarterly results in an update to clients on Thursday and maintained both his “Buy” recommendation and C$32.00 target price.

Headquartered in Chicago, Green Thumb is a national cannabis CPG company and retailer with 13 manufacturing facilities, licenses for 96 retail locations and operations in 12 US markets. GTI reported its third quarter ended September 30, 2019, financials on Wednesday, coming in with $68.0 million in revenue, almost triple that of a year ago and up 52 per cent from the previous quarter. (All figures in US dollars unless where noted otherwise.)

Management chalked up the increases to both organic growth across the company’s product line and retail business as well as contributions from recently-acquired Integral Associates, which has three high-traffic Essence retail stores in the Las Vegas area including the only cannabis shop on the Strip.

“We are starting to see leverage in the platform that we built,” said GTI Founder and CEO Ben Kovler, in a press release. “Our brand portfolio is now produced, distributed and sold in eight markets, a significant improvement from our position just one year ago, and yet this is just the beginning.”

“To meet growing demand in key markets such as Illinois, Pennsylvania and Massachusetts, we continue to expand our cultivation and manufacturing capacity. Our stores are delivering same store sales that exceed our expectations. We are well positioned to end 2019 on a strong note and expect to generate over $200 million in total revenue for the year as planned,” Kovler said.

GTI’s third quarter beat estimates for both top and bottom lines. Sales of $68 million were ahead of Fagan’s forecast at $64 million and the consensus $61 million while adjusted EBITDA (excluding biological assets) of $12.7 million was far ahead of the consensus call for $7.5 million and Fagan’s own (Street-high) $12.6 million.

Fagan estimates that Essence alone accounted for half of GTI’s EBITDA over the quarter, which he says points to solid EBITDA margin expansion in the company’s standalone platform, even considering that the company has operations under development in New Jersey currently without meaningful sales — a sign of the company’s strong cost control and gains in operating leverage, says the analyst.

“With Q3 representing GTII’s second consecutive quarter of standout results well in excess of consensus, we view this as further cementing the company’s track record of best-in-class operational execution,” writes Fagan.

“With balance sheet flexibility, renowned product quality, and diligent cost control, we continue to view GTII as amongst the best positioned MSOs to emerge as a long- term winner, and fully capitalize on the strong secular growth of the US cannabis industry,” he says.

Looking ahead, Fagan thinks that GTII will generate fiscal 2019 revenue and EBITDA of $217.5 million and $35.3 million, respectively, and fiscal 2020 revenue and EBITDA of $483.2 million and $164.6 million, respectively.

At press time, the analyst’s C$32.00 per share target represented a projected return of 149.4 per cent.