Green Thumb Industries is still a cheap stock, Beacon Securities says

Delivering an earnings beat in its latest quarter, US cannabis company Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News CSE:GTII) is a “Buy,” according to Beacon Securities analyst Russell Stanley, who reviewed Green Thumb’s third quarter results in an update to clients on Thursday. Stanley said even with its share price appreciation, GTII is still trading at a discount to its peer group average.

Chicago-based Green Thumb, the owner and operator of cannabis cultivation, production and retail operations across 12 states, including 13 manufacturing facilities and 48 operating dispensaries, announced third quarter financials on Wednesday, showing revenue up 131 per cent year-over-year and up 31 per cent sequentially to $157.1 million and adjusted EBITDA up 50.2 per cent to $53.2 million. At the end of the Q3, GTII had cash and equivalents of $78.1 million and total debt outstanding of $97.1 million.

“We expanded gross margins and EBITDA margins quarter-over-quarter while delivering positive net income for the first time. This was driven by the execution of our capital projects in Illinois, New Jersey, Pennsylvania and Ohio, and the rebound in our Nevada and Massachusetts markets following the initial impact of COVID-19,” said Ben Kovler, chairman and CEO, in a press release.

Kovler commented on the ‘green wave’ resulting from the US election where five states voted in favour of legalization initiatives: New Jersey, Montana and Arizona added legalized recreational cannabis to their already-legal medical cannabis, South Dakota legalized both rec and medical pot at the same time and Mississippi legalized medical cannabis.

“New Jersey is great news for us as we think that legal market has the potential to mirror Illinois – a single state, multi-billion dollar legal cannabis market about to be born. There was resounding support for our mission to promote well-being through cannabis and we remain bullish on our strategic position and the long-term prospects of our business,” Kovler said.

On the quarterly results, Stanley said the $157 million and $53 million in revenue and adjusted EBITDA beat his forecast of $133 million and $40 million, respectively, as well as the consensus guess at $135 million and $40 million. Stanley noted that GTII’s results beat the highest set of forecasts, as well, at $143 million and $48 million, respectively.

Green Thumb hit positive net earnings of almost $10 million for the first time in its history, Stanley said, and the company is more than upbeat on the road ahead, noting that supply shortages in Illinois and Pennsylvania have apparently abated.

“During last night’s conference call, management noted that there continues to be a ‘massive’ unmet market need, particularly in the company’s core markets of Illinois, Pennsylvania and New Jersey. This prompted CFO Anthony Georgiadis to state that GTII needs to build ‘a bigger boat’ to meet demand. With a strong balance sheet supported by positive cash flow generating operations, we believe GTII is fully capable of self- financing continued CAPEX investments,” Stanley wrote.

Stanley said GTII’s recent expansions in core states of Illinois, Pennsylvania, New Jersey and Ohio helped boost growth over the Q3 but that a fuller impact from those expansions will hit in the fourth quarter, although management has cautioned that the Q3 impact was stronger than expected and thus the Q4 results may be more muted.

The analyst is now calling for full 2020 revenue and adjusted EBITDA of $540.1 million and $169.4 million, respectively, and 2021 revenue and adjusted EBITDA of $810.0 million and $305.3 million, respectively. With the update, Stanley has introduced 2022 estimates, calling for revenue of $1,006.0 million and EBITDA of $412.1 million.

With his new estimates and his “Buy” rating, Stanley has now upped his target from C$24.00 to C$33.00, which at press time represented a projected 12-month return of 21 per cent.

GTII finished 2019 up 17 per cent and so far in 2020 the stock is up 108 per cent. Comparatively, Stanley says Green Thumb is still trading at a discount to its peers.

“GTII trades at approximately 11.5x our newly introduced 2022 EBITDA forecast, representing a 15-per-cent discount to the 13.5x average amongst US operators, and a nine-per-cent discount to the 12.6x average for the broad peer group,” Stanley said.

Also on Wednesday, Green Thumb announced the opening of its 50 cannabis store, this one in Kendall, Florida, with the company saying that profits from first-day sales will be donated to the Florida Rights Restoration Coalition, a group aimed at ending the disenfranchisement and discrimination against people with criminal convictions.

“We are thrilled to open our 50th store in the nation as a green wave continues across the country with five more states voting to legalize medical or adult-use cannabis during the recent election,” said Green Thumb Founder and Chief Executive Officer Ben Kovler. “We are also honored to donate our first day’s profits to the Florida Rights Restoration Coalition and to support their important work in the state.”