Green Thumb is a Buy in cannabis, says Beacon

It’s been a while since anyone has had anything to cheer about in the cannabis space, but investors looking for a good horse to back should be thinking about Green Thumb Industries (Green Thumb Industries Stock Quote, Charts, News, Analysts, Financials CSE:GTII). That’s according to Beacon Securities analyst Russell Stanley, who gave a quarterly preview in a Monday report to clients where he reiterated a “Buy” rating on the stock and C$36.00 target price, good for a projected one-year return at the time of publication of 211 per cent.

Chicago-based Green Thumb is a US multi-state operator with cultivation, production and retail across the country. The company currently generates revenue in 15 states, including 17 manufacturing facilities and 77 dispensaries. 

Ahead of fourth quarter 2022 financials due from GTII on Tuesday after the market close, Stanley is projecting revenue and adjusted EBITDA of $249 million and $75 million, respectively, versus consensus estimates at $275 million and $80 million. 

Stanley said Green Thumb is traditionally one of the strongest margin producers in the cannabis space, and thus, with its earnings coming before a number of other names, these results will set the bar for the rest.

“During its Q3 conference call in November, management reported that it had started to see some relief from pricing compression across its markets, so management’s latest views on the environment will be notable,” Stanley wrote.

“We will also be looking for GTII to reiterate (as it consistently has) its internal targets for gross/EBITDA margins of 50 per cent+/30 per cent+. We will also be watching for management’s CAPEX outlook for F2023, given expectations of CAPEX reductions (relative to F2022 levels) across the space,” he said.

In other news, Stanley said he’s interested in hearing management’s take in its quarterly commentary on store buildout in the Illinois market, where the company is a major wholesaler and retailer. There, 192 adult-use retail licenses were issued last year, with the first of those stores having just opened at the end of the year. The same he said applies to New Jersey, where wholesale demand growth is currently tied to the pace of store openings. Finally, Stanley said he would be looking for colour on GTII’s Florida agreement with convenience store giant Circle K.

“Given Circle K operates ~600 stores in Florida, and the state does not cap the number of dispensaries any cannabis licensee can open, the upside potential in Florida is significant,” Stanley wrote.

For the 2023 year, the analyst is currently estimating Green Thumb’s revenue at $1.201 billion and adjusted EBITDA at $423 million.