Replies to post #2626 on Green Thumb Industries Inc (GTBIF)

[FUNMAN]

It’s good to see GTI holding strong, but really the narrowing PPS margin has more to do with The Street punishing Trulieve then rewarding GTI.

[FUNMAN]

GTI: The Great American Growth Story Is Underway

Aug. 23, 2021 10:26 AM ET
Green Thumb Industries Inc. (GTBIF)

Read at the link to see all of the graphics

https://seekingalpha.com/article/4451255-green-thumb-industries-the-great-american-growth-story-is-underway?mail_subject=gtbif-green-thumb-industries-the-great-american-growth-story-is-underway&utm_campaign=rta-stock-article&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha

Summary

* Only 5 of the 14 states in which Green Thumb Industries operates have active adult-use markets, offering plenty of growth potential.

* The company is profitable, generates positive cash flow, and is growing absurdly fast.

* Delays in federal legalization will allow the company to cement its position as an industry leader and the recent sell-off has created an excellent buying opportunity.

Green Thumb Industries (OTCQX:GTBIF) is the second-largest multi-state operator (MSO) in the US cannabis industry by both market cap and revenue, trailing only Curaleaf (OTCPK:CURLF). The company is well-capitalized and profitable, with steadily-improving margins, and will continue to benefit from both organic growth and new acquisitions as it expands its national footprint. While cannabis stocks - including GTBIF - may continue to languish without federal reform, from my perspective, the companies themselves will benefit from delayed legalization as they continue to expand and establish their brand. Overall, Green Thumb Industries offers a compelling growth opportunity and I am very bullish on its long-term prospects.

Overview

Green Thumb Industries (which I'll refer to as GTI throughout this article) is a vertically-integrated cannabis company, meaning it manufactures and cultivates its own products and distributes these products through third-party retailers as well as its own retail stores and digital marketplaces. In 2020, its Retail segment - sales through its own stores - accounted for 71% of total revenue. As of August 10, GTI sells its products under six brands, operates 16 cultivation and manufacturing facilities, and generates revenue from 62 retail stores. After recently expanding into Rhode Island and Virginia, the company now operates in 14 states.

Strategic Expansion

With the exception of Colorado and California, GTI has expanded strategically, establishing itself in high-demand, medical-only states prior to recreational (or "adult-use") legalization. In the medical-only phase, states typically award a limited number of licenses and have much stricter regulations, which restricts competition and allows GTI to establish its brand and retail presence. Once adult-use sales begin, GTI benefits from its entrenched position and capitalizes on the tidal wave of new demand, despite the increased competition.

As the chart above shows, only five of the states in which GTI currently operates have active adult-use markets, with recreational sales set to begin in New Jersey, New York, Virginia, and Connecticut at various points over the next few years. These fourteen states alone hold massive potential and GTI is poised for explosive growth as their recreational markets emerge and mature over the next decade.

Exceptional Execution

GTI's revenue and gross profit have both posted insane growth over the past several years, growing at CAGRs of 161% and 180% respectively since Q2 2019.

Green Thumb Industries Operating Income/Loss

Source: Created by author using data from GTI's quarterly reports.

Operating income has also exploded, increasing more than 10x YoY. In fact, Q2 2021 marked the fourth consecutive quarter of positive GAAP net income and the sixth consecutive quarter of positive operating cash flow.

Green Thumb Industries Operating Cash Flow

Source: Created by author using data from GTI's quarterly reports.

Best of all, margins have continued to expand with scale.

Green Thumb Industries Per-Store Revenue

Source: Created by author using data from GTI's earnings releases.

Green Thumb Industries Comparable Stores Growth

Source: Created by author using data from GTI's earnings releases.

Note: This chart shows the increase in sales from "comparable stores" open the prior year and the prior quarter. For instance, in Q2 2021 revenue increased by 34% YoY in the 42 stores open in Q2 2020 and by 7% QoQ in the 51 stores open in Q1 2021.

And lest you think GTI's performance is simply due to M&A, organic growth has also been strong, with per-store revenue rising over time and sales from "comparable stores" increasing each quarter.

Benefitting from Delayed Legalization
Despite the excellent results reported by GTI - and many of the other top MSOs - in Q2 2021, the entire industry has sold off dramatically since February as hopes of federal reform have faded. This sell-off is completely overblown, in my opinion, and I think GTI and the other top MSOs - Curaleaf, Cresco Labs (OTCQX:CRLBF), and Trulieve Cannabis Corp. (OTCQX:TCNNF) - actually benefit from any delays in federal legalization.

As I described above, medical-only markets typically have stricter regulations and award a limited number of licenses, artificially restricting competition and allowing GTI to cement its position in each state. While federal legalization will certainly benefit GTI - namely through lower taxes and access to traditional banking services - it will also bring increased competition. As the company is well-capitalized - currently sitting on $360 million in cash with only $197 million in long-term debt - and is already generating positive cash flow, I think these benefits are of less importance to GTI than its smaller competitors (who are still burning through cash and could desperately use access to cheaper capital). While federal reform will undoubtedly cause GTI's stock price to skyrocket - as institutions will finally be free to invest - I think the company itself will benefit from the extra time to expand and raise its brand awareness.

Risks
Amazingly, the most oft-quoted reason I see for not investing in GTI - or any other cannabis stocks - is that federal legalization will bring increased competition that will pressure margins. Ignoring the fact that federal reform is simultaneously touted as both the catalyst for future gains and a major risk that threatens the profitability of the entire industry, I think these fears are overblown. I see GTI and the rest of the "Big Four" MSOs continuing to dominate the cannabis industry the same way that Anheuser-Busch InBev (BUD), Heineken (OTCQX:HEINY), Molson Coors Beverage Company (TAP), and Boston Beer Company (SAM) continue to dominate the beer market, despite the thousands of craft breweries scattered throughout the US.

Besides the threat of increased competition, the prospect of additional share issuances seems to pose the greatest risk. Given the company's strong balance sheet and improving cash flows, however, the risk of further dilution seems low and is far outweighed by the company's incredible growth prospects.

Takeaway
U.S. Legal Cannabis Sales

Source: BDSA via Reuters

As evidenced in the graph above, legal cannabis sales in the US are projected to explode over the next several years. GTI is well-capitalized, profitable, and growing rapidly, and I believe it is positioned to become a dominant player in this nascent industry. While federal reform is inevitable, in my opinion, any delays simply allow GTI to cement its position as an industry leader. Furthermore, the extreme sell-off caused by delayed legislation provides an excellent opportunity for investors to accumulate shares. Although I'm sure the stock will continue to exhibit extreme volatility, the Great American Growth Story holds massive potential and I believe long-term shareholders will be handsomely rewarded for their patience.

This article was written by

Robert Stup profile picture.
Robert Stup
23 Followers
Recent UVA grad, double major in financial economics and statistics. Individual investor interested in secu...
Long Only, Growth At A Reasonable Price, Long-Term Horizon

Contributor Since 2021

Recent UVA grad, double major in financial economics and statistics. Individual investor interested in secular growth opportunities. Just sharing my thoughts, always open to suggestions or criticism.

Disclosure: I/we have a beneficial long position in the shares of GTBIF, CRLBF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.








 

[FUNMAN]

GTI - "A study of 5,000 participants in the US and Canada has overturned long-held stereotypes regarding those who use cannabis. The findings suggested that today’s cannabis consumers are successful, employed, health-conscious individuals."

"A study of 5,000 participants in the US and Canada has overturned long-held stereotypes regarding those who use cannabis. The findings suggested that today’s cannabis consumers are successful, employed, health-conscious individuals."https://t.co/ly2cD0or1r

— Green Thumb Industries (GTI) (@GTIGrows) August 27, 2021