Green Thumb Industries is a Top Pick for Q3, says Echelon

‘If it ain’t broke’ should be the motto when it comes to US cannabis name Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) says Echelon Capital Markets analyst Andrew Semple who renewed GTII’s status as a Top Pick in a report to clients Friday.

Semple has put GTII into Echelon’s Top Picks Portfolio for the last three quarters, where the stock outperformed the tracking group average for all those time periods, including for the Q2 where GTII returned a massive 65 per cent.

“We look for GTI to follow through on the outperformance streak in Q320,” said Semple in his report.

“Recent updates show the Company continues to operationalize store locations at a faster pace than we have modelled, leaving potential for further financial and operational outperformance. Industry data points have also been encouraging, suggesting that cannabis demand in the Company’s markets is developing (e.g., Illinois) or recovering (e.g., Nevada) at a faster pace than expected,” Semple wrote.

Chicago-based Green Thumb is a US multi-state operator with 13 manufacturing facilities and licenses for 96 retail locations and operations across 12 US markets. At the end of June, GTII announced the opening of its fifth Essence brand store in the Las Vegas area, representing the company’s 48th retail location in the US.

Green Thumb currently has licenses for six more stores in Nevada, where tourism has begun to open back up even as the state’s COVID-19 case numbers have recently been the highest since the pandemic began. This past week, Green Thumb also opened a new store in Duncansville, Pennsylvania, under the company’s Rise banner.

With his update, Semple has maintained his “Buy” rating and C$20.00 target price, which at press time represented a projected 12-month return of 54.9 per cent. The analyst thinks GTII will generate fiscal 2020 revenue and adjusted EBITDA of $457.3 million and $114.1 million, respectively.

Semple said Green Thumb is fully funded for its operations and buildout plans, with no pending, announced M&A transactions, and the analyst figures GTII is one of just a few cannabis operators currently generating operating cashflow, which he attributes to its scale in a number of markets that has allowed it to get to profitability “far quicker than many of its peers,” Semple said.

As for potential catalysts over the third quarter, Semple wrote, “We look for GTI to make further progress on operational milestones, primarily store openings. We also note the potential for M&A and license awards to add to the Company’s portfolio of assets. Though Q220 results may be somewhat off-trend due to COVID-19 related regulatory emergency measures, we believe financial updates should be broadly positive. Investors should watch for positive commentary on the recovery of COVID-19 impacted markets such as Massachusetts and Nevada, while industry data for other core markets such as Illinois and Pennsylvania suggest the Company’s robust growth in those markets continues.”

Semple reported that over the second quarter, GTII’s 65.2 per cent return was better than his tracking group average return of 20.3 per cent and the TSX Cannabis Index’s return of 9.0 per cent.