Green Thumb scores a target raise from Beacon Securities

Beacon Securities analyst Russell Stanley retains a green light when it comes to investing in Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News, Analysis, Financials CSE:GTII), maintaining his “Buy” rating while raising his target price from C$46.00 to C$50.00/share for a projected return of 21 per cent in an update to clients on August 12.

Founded in 2014 and headquartered in Chicago, Green Thumb Industries owns and operates cannabis cultivation, production and retail operations in the United States. The company generates revenue in 14 states, including 16 manufacturing facilities and 62 operating dispensaries, with the recent launch of a Rise dispensary last week in Warminster, the company’s 16th location in Pennsylvania.

Stanley’s updated analysis comes after Green Thumb Industries reported its second quarter financial results for 2021 on August 11, which came in ahead of projections.

Green Thumb Industries reported revenues of $222 million to outpace the Beacon Securities projection of $202 million as well as the consensus expectation of $208 million, with revenues primarily driven by the wholesale and retail segments, particularly in Illinois and Pennsylvania. The results also represented an 85 per cent year-over-year increase for the company, as well as a 14 per cent improvement over the first quarter of the year.

The company also outperformed on earnings, with its adjusted EBITDA coming in at $79 million to beat the Beacon Securities forecast of $74 million and the consensus forecast of $75 million. Meanwhile, the company’s cash from operations came in at $48 million and 22 per cent margin, beating Stanley’s previous projection of $38 million and a 19 per cent margin.

“The second quarter continued to be about disciplined execution and the team should be proud of the results,” said Ben Kovler, Green Thumb Chairman, Founder and CEO, in the company’s press release. “Since the first quarter, we closed three acquisitions, expanding our manufacturing capabilities in Massachusetts and geographic footprint into two new states, Virginia and Rhode Island. These critical steps strengthened our position to distribute our brands to more patients and consumers in existing and new markets,”

“The great American growth story in cannabis is happening–the momentum is undeniable. Consumers demand safe, reliable alternatives for well-being and we are excited to meet their needs with high-quality cannabis experiences. There is still incredible untapped potential in all of our operating regions, and we will continue our strategy to invest in high-return initiatives that prepare us for the growth ahead and future value creation for our stakeholders,” Kovler added.

Green Thumb’s updated results prompted Stanley to revise some of his estimates, primarily to account for benefits of additional licenses in Illinois, acquisitions in Massachusetts and Rhode Island, as well as a stronger view on New Jersey and the potential associated with introducing flower into the New York medical market.

Stanley now projects the company will reach $889 million in revenue for 2021 instead of $866 million, before jumping to a projected $1.233 billion in revenue (previously ($1.136 billion) in 2022. Meanwhile, Stanley has also changed his adjusted EBITDA figures for this year and next, with estimates now lining up at $323 million and 36 per cent margin for 2021 instead of $322 million and 37 per cent margin, while 2022 forecasts a slightly sharper jump to $485 million and 39 per cent margin instead of a 41 per cent margin at $465 million.

Liquidity margins remain strong in Stanley’s latest projections, with operating cash flow now projected to reach $212 million (previously $200 million) in 2021 and $317 million (previously $292 million) in 2022, with cash from operations slightly dipping to a projected $165 million (previously $169 million) in 2021 before rebounding to $283 million (previously $263 million) in 2022. Free cash flow projections follow a similar pattern, with Stanley now forecasting $37 million (previously $41 million) in 2021 before increasing to a projected $163 million (previously $143 million) in 2022.

Green Thumb’s valuation ratios also appear to be in good shape per Stanley’s numbers, with EV/Sales projected to drop from the reported 13.4x in 2020 to 8.4x in 2021 and 6.1x by 2022, while the EV/EBITDA multiple is also forecast to drop from the reported 41.5x in 2020 to a projected 23.1x in 2021, then to 15.4x by 2022.

With a strong financial position and approximately $350 million in cash on hand, Stanley is confident in Green Thumb’s ability to keep growing, particularly in relation to its competition.

“Given the company’s strong cash flow profile, we believe it can effectively self-finance its CAPEX requirements, leaving essentially all of the company’s cash available for M&A or other investments,” he said.

Stanley noted management’s intention on putting further investment into its Florida operations.

“Perhaps the most interesting comment made during the [August 11] conference call related to Florida. After pausing on further investments in FL two years ago to dedicate its growth capital to other markets (including Illinois, Pennsylvania), management noted that it will be deploying some capital in Florida within the next three months. The company conceded that its peers are also devoting more capital to this market, so GTII plans to make this investment and then evaluate its performance before committing additional capital. While no specifics (e.g. investment size, expansion targets) were discussed, we view the comments as notable given the company’s decision to stand pat in this market until now,” Stanley wrote.

GTII has performed well overall in 2021, producing a return of 21.67 per cent since January 1.