Green Thumb should weather the COVID storm just fine, says Echelon Wealth

Look for US cannabis name Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) to keep outperforming its peers in these tough market conditions, said Echelon Wealth Partners analyst Andrew Semple in a new report to clients on Monday.

The analyst has put GTI into Echelon’s Top Picks Portfolio for the second quarter 2020, saying the company has a number of stand-out features that investors should be considering.

Chicago-headquartered GTI has 13 manufacturing facilities, licenses for 96 retail locations and operations across 12 US markets. The company recently reported fourth quarter 2019 earnings which featured revenue up 265 per cent year-over-year to $75.8 million, showing its growth in across a number of states over the past year, and a net loss of $13 million or $0.06 per share. (All figures in US dollars unless where noted otherwise.)

Released on March 26, the Q4 report had management addressing the company’s response to the COVID-19 crisis, saying all its facilities remain operational as governments in various jurisdictions have so far judged cannabis shops to be among essential services. Further, the company reported strong demand for its products over the first few weeks of March.

Semple says the uptick in demand along with GTI’s positive cashflow and meaningful scale in several of its markets will work as ballasts during the current market conditions.

“We believe GTI is a standout business in the US cannabis industry, for all the right reasons. GTI is fully funded for its operations and buildout plans, has no pending M&A transactions (that have been announced), and we believe it is one of the few cannabis operators generating operating cashflow,” Semple said.

2019 was a poor year for cannabis stocks across the board but Green Thumb was a notable outlier, finishing the year up 17 per cent. But so far in 2020, GTI has ultimately performed in sync with the sector, having been hit by the general market downturn and is now down 35 per cent year-to-date. By comparison, the Horizons Marijuana Life Sciences ETF, for example, which tracks the North American industry as a whole is down 32 per cent for 2019.

But Semple argued that GTI should stand out from the rest in the upcoming year, saying that with Green Thumb he is comfortable looking beyond the uncertainties of the next 12 months.

“We look forward to seeing Q120 results which are to be reported in May, which will show a re-acceleration of growth (as mentioned, management guided towards sales growth of 20-25 per cent q/q). We expect GTI will experience strong SSS-growth at the retail level as well as a larger wholesale presence, driving sustained growth at a healthy rate,” Semple said.

“We also note GTI is one of the few cannabis companies in the US to have a sizeable amount of excess capital (per our models), which positions it favourably to withstand these difficult times, while potentially giving it capacity to pursue tuck- in acquisitions at favourable prices as the pandemic measures are lifted,” he said.

With the update, Semple reiterated his “Buy” rating and C$20.00 target which at press time amounted to a projected return of 150 per cent.