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Is Green Thumb Industries Stock a Buy?

By David Jagielski – May 10, 2020 at 6:22AM

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The company has two streams of revenue, both of which showed impressive growth last year.

Green Thumb Industries (GTBIF 0.76%) runs a diverse cannabis operation -- the company has 13 manufacturing facilities -- but it's more than just a pot producer. It's heavily focused on retail, and on its website, Green Thumb refers to itself as a "cannabis consumer packaged goods company." With five different retail brands, including Rise, its flagship brand, the Chicago-based company aims to target various types of cannabis customers.

The company's business model's been working so far, generating $216 million in sales in 2019. However, 2020 is a much different year for the industry, one many cannabis companies won't survive.

Let's take a look at the strength of the company's financials and whether the stock is a buy.

The company's cash position looks good heading into a challenging year

Although the company incurred a loss of $59.1 million last year, one area where Green Thumb stands out from many other pot stocks is that it's in a decent financial position.

At the end of 2019, Green Thumb had $46.7 million in cash and cash equivalents on its books. While that's down from the $146 million it had access to at the beginning of the year, as long as the company's cash burn doesn't get worse, it could be in good shape for 2020. In each of the past two years, Green Thumb has used about $18 million to fund its operating activities. And in 2019, it spent $19.9 million on inventory.

Someone wearing gloves and trimming marijuana leaves

Image source: Getty Images.

This year, it may not spend as much amid restrictions and lockdowns, especially since its inventory balance as of Dec. 31 was $46 million, almost three times as much as the $12.4 million it had on the books a year earlier. With less of a need to stockpile inventory this year, Green Thumb may be able to conserve some of its cash.

Sustainability is important in the cannabis industry these days as many companies are on the verge of running out of cash. But based on its recent results, Green Thumb doesn't look like it belongs in that group; its financials are in good shape, at least for now.

Investors will get an updated picture of its cash situation on May 14, when Green Thumb releases its 2020 first-quarter earnings.

Diverse product offerings could make Green Thumb more resilient

Green Thumb identifies two main revenue sources on its financial statements -- consumer packaged goods and retail. While sales from its retail stores are self-explanatory, consumer packaged goods, which it calls its core business, include the company's many different brands: Beboe, Dr. Solomon's, incredibles, Rythm, and The Feel Collection. The brands encompass cannabidiol (CBD) skincare products, vape pens, edibles, pre-rolls, flower, and concentrates, as well as other products. 

Last year, Green Thumb's consumer packaged goods sales more than quadrupled to $109.9 million, while retail sales tripled to $137.8 million. However, because the company's products are also sold in its retail stores, Green Thumb recorded intersegment eliminations of $31.3 million to net out some of those overlapping sales.

The important takeaway for investors here is that even given those eliminations, Green Thumb has two strong revenue streams that are helping it grow. Diversification is important, and it could help this company adapt to the uncertainty surrounding COVID-19.

Should investors buy the stock today?

Shares of Green Thumb are down 27% since the beginning of the year, which is only a bit better than the 30% decline the Horizons Marijuana Life Sciences ETF (HMLSF -1.06%) has experienced. Green Thumb is an attractive buy given its impressive numbers. However, investors will be better off waiting until after the company releases its earnings later this month to get a better idea of the impact COVID-19 is having on its operations, as well as to see how strong its cash position is.

Given the risks in the cannabis industry, investors might want to be extra cautious this year before buying any pot stocks.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

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Green Thumb Industries Stock Quote
Green Thumb Industries
$13.25 (0.76%) $0.10
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Horizons Marijuana Life ETF
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