Green Thumb Industries Inc (GTBIF)

[FUNMAN]

Profit at Marijuana Seller Green Thumb Stays High, Despite Slower Economy
By Bill Alpert

https://www.barrons.com/articles/green-thumb-gtbif-stock-price-marijuana-sales-profit-51659628469

Aug. 4, 2022 11:56 am ET

People are buying marijuana products, but opting for lower-priced options, Green Thumb's CEO says.

One place consumers can find refuge from inflation is the cannabis dispensary.

“The cannabis industry isn’t experiencing inflation,” Green Thumb Industries GTII –0.08% chief Ben Kovler told Barron’s after the marijuana vendor reported earnings Wednesday. “It is experiencing price compression.”

Green Thumb (ticker: GTBIF) is the first of the multistate cannabis operators to report. Like other state-licensed operations, the 74-store chain is seeing consumers shift their purchases toward lower-priced products. So while Green Thumb’s June quarter revenue rose 5% sequentially and 15% year over year, gross margins narrowed to 50% of sales in June, compared with 55% in the year-ago quarter.

Disciplined spending allowed Green Thumb to continue as one of the few multistate operators that reports net income. The company earned $24 million, or 10 cents a share, compared with $22 million and 10 cents in June 2021.

The federal illegality of cannabis keeps shares of state-legal firms like Green Thumb on the over-the-counter market, where the stock was up 0.5% in Thursday morning trading to $9.76. The failure of legalization bills to advance through Congress has weighed on U.S. operators like Green Thumb. Its stock has dropped about 55% this year, in line with the industry tracking AdvisorShares Pure US Cannabis exchange-traded fund (MSOS), but well worse than the 20% decline of the Nasdaq Composite indexCOMP +0.20% .

Chief executive Kovler says that unit volumes are holding up, but pressures on consumer purchasing power have changed the sales mix. “Consumers are buying less high-end product and more in the value space,” he said.


Bigger jumps in Green Thumb’s sales will track state expansions. The start of recreational sales in New Jersey helped offset some of the economy’s crunch in the June quarter. Illinois needs to allow more stores, and Pennsylvania has yet to allow cannabis edibles and recreational sales, Kovler noted.

Sales in the second half of this year will benefit from the start of recreational sales in Connecticut and Rhode Island. New York is a market where Green Thumb has invested ahead of the state’s planned recreational opening—but state regulators moved slowly, while illegal sellers operate openly in places like Manhattan.

“You can buy marijuana from a truck, a street corner, or a store, all over Manhattan,” Kovler said.

In Congress, Senators Chuck Schumer (D-N.Y.) and Cory Booker (D-N.J.) are talking up their cannabis legalization bill, but Kovler sees little movement. A bill to ease his industry’s access to banks never made it through Congress.

Despite challenges, Kovler says his market and business remain robust. Green Thumb produced $140 million in cash flow this year and has plenty of cash on its balance sheet.

Analyst Pablo Zuanic at Cantor Fitzgerald wrote in a Thursday note that near-term growth at Green Thumb may remain subdued, even though he foresees long-term gains. While maintaining his Overweight rating, Zuanic trimmed his price target from $39 to $31. That still implies plenty of upside for a stock that he calls one of his top picks.

Write to Bill Alpert at [e-mail]