Green Thumb Industries is a buy, this analyst says

Beacon Securities analyst Russell Stanley kept a “buy” rating and C$14 target on Green Thumb Industries (Green Thumb Industries Stock Quote, Chart, News, Analysts, Financials GTII:CNX) after Q2 results, saying his investment view is largely unchanged. Margins remain under pressure from price compression and should stay below 30 per cent in the near term, but revenue topped forecasts, cash flow was stronger than expected, and the balance sheet has no major debt due until 2029.

The company is generating sufficient cash to cover its $80-million CAPEX plan and share buybacks, positioning it to pursue growth and deliver shareholder returns.

Cannabis consumer goods company Green Thumb is a U.S.-based multi-state operator headquartered in Chicago, IL.

Green Thumb’s Q2 revenue was $293-million, beating Beacon’s $280-million forecast, consensus at $283-million, and company guidance, though softer margins kept Adjusted EBITDA at $83-million, in line with expectations. Gross margins missed by 105 basis points, falling 386 bps year over year and 138 bps quarter over quarter on continued price compression.

Normalized operating expenses rose to $74-million from $67-million last year, driven by 14 new store openings and higher cash compensation.

“Green Thumb has traditionally targeted adj EBITDA margins of ~30%, but in recent quarters it has warned that persistent price pressure across key markets would likely push margins under that target,” Stanley said. “With the Q2 results, management predicted that sub-30% margins will continue in the coming quarters. During Q2, GTII produced $69M of operating cash flow before working capital, and $56M net of w/c, beating our forecasts of $59M and $33M, respectively.”

The company ended Q2 with $177-million in cash and equivalents, down from $211-million in the prior quarter, and total debt of $250-million. Strong cash flow from operations was offset by $68-million in investing activity, including capital spending, a follow-on investment in Agrify, and the purchase of retail licences in Connecticut, as well as $22-million used for financing, which included $24-million in share buybacks.

“Following the September 2024 debt financing, GTII is unique amongst major MSOs for having no major maturities through September 2029 (though another major MSO should close its debt financing this week),” Stanley said. “Following a modest Q1, the company accelerated buyback activity during Q2, particularly in June, repurchasing almost 5.6M shares at an ACB of $4.28/sh (or C$5.91/sh). At quarter end, the company had $15.6M available under the $50M buyback authorized by the board in September 2024.”

In November, Green Thumb acquired a non-controlling interest in Agrify for $15-million in cash and $3.3-million in stock, along with warrants to increase its stake. The company also provided Agrify with a $10-million secured loan maturing in November 2025, paying 10% interest and convertible at $3.16 per share. At the end of Q2, Green Thumb held a 34% ownership stake in Agrify.

“In May, the convertible note was amended to allow GTII to receive pre-funded warrants instead of shares,” Stanley said. “Also in May, the company sold its farm bill-compliant hemp business and its IP in the incredibles brand to Agrify for $5.1M in cash.”

Green Thumb is now licensing its intellectual property and has entered into licensing agreements with Agrify involving its Beboe and RHYTHM brands. The company also issued an additional $27-million in notes due in November 2026.

During its conference call, management said it will pause quarterly earnings calls for now, returning “when the timing is right.” The company said it will continue regular disclosures and remain available to analysts and investors as needed.

Stanley said that Green Thumb should do $330-million in Adjusted EBITDA on revenue of $1,148-million in fiscal 2025. He thinks those numbers will improve to $361-million on revenue of $1,212-million in fiscal 2026.

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