162 per cent upside to Green Thumb Industries, says Beacon

Beacon Securities analyst Russell Stanley delivered an update to clients on Monday on US cannabis name Green Thumb Industries (Green Thumb Industries (Green Thumb Industries Stock Quote, Charts, News, Analysts, Financials CSE:GTII). The pot sector is still down in the dumps, but Stanley reiterated a “Buy” rating on GTII and C$40.00 target price, which at the time of publication represented a projected one-year return of 162 per cent.

Ahead of third quarter earnings from Green Thumb due on Wednesday after market close, Stanley is estimating Q3 revenue and adjusted EBITDA of $259 million and $78 million, respectively, compared to the consensus call at $256 million and $78 million, respectively. The analyst is expecting cash from operations after working capital of $33 million for a cash from operations margin of 13 per cent, which would be a $48 million improvement from the previous quarter where the company dealt with seasonally heavy tax payments and working capital requirements. (All figures in US dollars except where noted otherwise.)

Further afield, Stanley is calling for GTII to generate full 2022 revenue and adjusted EBITDA of $1,026 million and $307 million, respectively, and 2023 revenue and EBITDA of $1,311 million and $471 million, respectively.

On valuation, the analyst has GTII at EV/Net Revenue going from 3.3x for 2021 to 2.8x for 2022 and then to 2.2x for 2023. On EV/adjusted EBITDA, he sees the multiple going from 9.4x for 2022 to 9.5x for 2022 and to 6.2x for 2023.

Stanley said the 6.2x 2023 EBITDA multiple represents a five per cent discount to Green Thumb’s peer group average of 6.5x among CSE-listed US cannabis operators. 

“Given this is one of the most liquid stocks in the peer group and its strong EBITDA/cash flow margin track record, we continue to believe it deserves a premium multiple. Potential company-specific catalysts include the Q3 results Wednesday, progress on the Circle K rollout, and M&A activity,” Stanley wrote. 

On the Circle K deal, Green Thumb recently announced an exclusive agreement with the convenience store chain’s locations in Florida, which currently has a medical cannabis market. The arrangement will see Green Thumb lease space at Circle K locations, with an initial test phase to include ten RISE Express-branded medical dispensaries to open adjacent to Circle K locations starting in 2023.

“There is considerable upside, given Circle K operates ~600 sites in Florida, and the convenience factor for consumers will be considerable,” Stanley wrote.

Green Thumb, which currently has a market cap of C$3.6 billion, is year-to-date down about 41 per cent.