US cannabis CPG company and retailer Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) is looking to flourish in Illinois’ newly opened up recreational cannabis scene, says analyst Russell Stanley of Beacon Securities, who in an update to clients on Monday stayed the course with his “Buy” rating and C$24.00 target price, representing at press time a 192 per cent projected return.
Chicago-headquartered GTI has operations across 12 US markets including 13 manufacturing facilities and licenses for a total of 96 retail locations. The company’s branded cannabis products including Beboe, Dogwalkers, Dr. Soloman’s, incredibles, Rythm and The Feel Collection.
The company on Monday announced entering a sale/leaseback transaction with real estate company Innovative Industrial Properties for GTI’s cultivation and manufacturing facility in Oglesby, Illinois. The third such transaction with IIPR, this one comes with an initial purchase price of $9 million with up to $41 million in potential reimbursements for facility enhancements and capacity expansions.
“The highest ROIC in global cannabis today is in wholesale capacity expansion in our home state of Illinois,” said Green Thumb Founder and CEO Ben Kovler, in a press release. “IIP is a proven long-term real estate capital partner and provides us with another flexible real estate capital solution that allows us to put our capital to work in the best way possible. With the introduction of Illinois’ adult-use cannabis program this year, we continue to ramp up production to meet the demand from cannabis consumers and patients.”
In his update, Stanley pointed to GTII’s current roster of seven dispensaries in Illinois, with licenses for three more, along with a cultivation and manufacturing facility in Rock Island. The analyst says Illinois sales continue to impress, now two months in from the start of the adult-use market.
“Product shortages have been well reported by the local media, resulting in periodic rationing and occasional store closures. While the vast majority of Illinois’ producers are limited to one cultivation/manufacturing license, GTII has two. The transaction announced today with IIPR positions Green Thumb to expand its capacity to serve a market where excess demand is well documented, and we therefore view the development positively,” wrote Stanley.
Ahead of Green Thumb’s fourth quarter financials due on March 26 after market close, Stanley is expecting revenue and adjusted operating EBITDA of $74 million and $11 million, respectively (the consensus is $76 million and $13 million, respectively). For the upcoming fiscal 2020, Stanley is calling for revenue of $471 and attributable EBITDA of $129 million.
The analyst contends that Green Thumb is trading at a discount to its industry peers, with GTII trading at a 4.6x multiple of his fiscal 2021 EBITDA forecast compared to a 6.7x multiple for its US industry peers (representing a 31 per cent discount) and an 8.8x multiple for the broader peer group (a 47 per cent discount).
Up ahead, Stanley sees catalysts in the Q4 results, building progress and a referendum on a city council ban on adult-use cannabis sales in Naperville, Illinois, scheduled for March 17, where GTI currently operates a medical-only store.
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