The U.S. cannabis market is still trying navigate its way through what I call the "three Rs of legalization": regulations, real estate, and reality. More and more states are legalizing medical and recreational-use cannabis each year, and the Biden administration has shown support for decriminalization -- though nothing concrete on federal legalization, which some members of Congress are pushing for. Meanwhile, cannabis companies are vying for retail space and submitting license applications in an attempt to grab state-by-state victories.
In the case of Green Thumb Industries (GTBIF -1.68%), those victories are mounting. As an investor, you might be asking whether those victories could make you rich -- maybe even within the next five years.
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Yes, Virginia, there is a Cannabis Claus
In April of this year, Virginia became the 16th state, and the first southern state, to legalize marijuana, allowing adults 21 and older to possess small amounts starting July 1, 2021 -- though recreational sales are not expected to begin until the start of 2024.
In preparing for legalization, Virginia lawmakers offered up five vertically integrated licenses, allowing those licensed medical marijuana operators to grow, process, and sell directly to consumers. This is an important number, because based on previously approved legislation, new licensees will not be permitted to vertically integrate. That means the market for one-stop shops will be tight, and those that have licenses will have a strong foothold. It didn't take Green Thumb long to get in on the action.
Quick access through acquisition
Shortly after securing $217 million in debt financing, the company announced it was purchasing Dharma Pharmaceuticals -- an established medical cannabis operator with dispensaries in Virginia -- in an effort to expand into the state's cannabis market. For Green Thumb, this is big. The purchase provides the company with one of the five vertically integrated licenses, an existing production facility, and access to an existing customer base in an emerging market, and allows it to open five additional retail locations in Virginia.
Adding Virginia to its base will increase the company's cannabis presence to 13 states, and expose it to a potential $1.5 billion more in legal cannabis sales by 2024.
From a momentum perspective, the timing doesn't get much better. In March, the company released a full-year earnings report in which it boasted a 157% increase in revenue to $556 million, netting $0.07 per share for investors, compared to a loss of $0.31 per share in 2019. For the fourth quarter alone, revenue was up 12.8% sequentially, and 134% year over year. Those numbers led chairman, founder, and chief executive officer Ben Kovler to refer to the past year as a "milestone year for Green Thumb," with four consecutive quarters of operating leverage and a positive GAAP net income for two straight quarters.
Reward won't come easy
Green Thumb's world is not without obstacles, though, as is par for the course in these early stages of the cannabis market. One of those obstacles comes in the form of competition. In Virginia, the company will be competing for market share against multiple growers, processors, retailers, and vertically integrated licensees such as Columbia Care (CCHWF 1.12%).
Columbia Care, based out of New York, currently has one dispensary in Virginia, located in the southeastern portion of the state. But much like Green Thumb, it has multiple dispensaries -- 36 in all -- spread across 11 states, plus the District of Columbia. Those states include Green Thumb's own home state of Illinois.
Competitors will remain an obstacle as the market continues to grow, but so far, Green Thumb's actions have shown that it is up for the challenge.
So close you can taste it
It's a bit too early to tell if investors should schedule a money truck to back up to the front door, but Green Thumb's latest revenue and earnings, combined with its growth, should give investors the confidence to ride this one for a while. Year-to-date returns are outpacing the S&P 500 by a score of 21% to 12%. The stock price is currently down around 22% from its one-year high in February, and was down as much as 24% before starting to find its way back up a bit.
If you're still not convinced, remember that the performance the company has shown so far is based on business in 13 states, with no current federal legalization in place. When that happens, investors will wish they got in on this one now.
