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Is Green Thumb Industries a Buy?

By David Jagielski – Nov 14, 2021 at 6:10AM

Key Points

  • The company hit record sales in Q3 while maintaining a profit.
  • It sells its products in many of the top pot markets in the country.
  • Green Thumb's stock has been struggling of late, but it still might be a better buy than many of its peers.

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The multi-state marijuana operator is coming off another strong earnings report.

The Horizons Marijuana Life Sciences ETF has fallen more than 12% in the past six months (the S&P 500, meanwhile, is up around 12%) as pot stocks have been fading from investors' radars of late. Over the long term, however, there are significant opportunities in the sector: Analysts from Grand View Research project that the legal marijuana market will grow at a compound annual growth rate (CAGR) of 26.7% until 2028.

Investing in a top multi-state operator (MSO) like Green Thumb Industries (GTBIF 3.64%) could be a great way to tap into that potential. But is now the time to buy the stock, or are there better options out there for cannabis investors?

Two people working inside a greenhouse.

Image source: Getty Images

The company's revenue is nearing a $1 billion annual run rate

Green Thumb reported its third-quarter earnings in November for the period ending Sept. 30, during which sales of $233.7 million set a new record and represented 48.7% year-over-year growth. That puts the company at an annual revenue run rate approaching $1 billion. With even some modest growth next year (e.g., less than 10%), it should be a safe bet that Green Thumb generates sales of at least $1 billion for 2022. For this past quarter, the multi-state operator credited greater distribution of its branded products and more traffic at its 65 retail stores for the strong growth numbers.

The company generated revenue from 14 states, including top cannabis markets such as California, Colorado, and Florida. It's also in some markets that legalized recreational marijuana -- New York and New Jersey (neither has commenced adult-use sales yet, but both are promising long-term opportunities). And so, as well as Green Thumb is doing today, its prospects look even better in the years ahead.

Green Thumb is not just growing, but it's also profitable

What makes the company's growth even more impressive is that Green Thumb is able to achieve it while maintaining profitability. This quarter was the fifth in a row where the company reported an accounting profit (i.e., positive net income) as opposed to just a positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) number, which is what many businesses in the industry strive for

The MSO has also brought in $82.8 million in cash from its day-to-day operations since the start of the year, which could help the business expand to pursue more growth opportunities. In September, Green Thumb announced the acquisition of cannabis company GreenStar Herbals, which has two pot shops in Massachusetts to help expand its presence in that state. If Green Thumb continues to generate significant cash, more deals like this could be on the horizon.

Is Green Thumb a cheap buy?

When compared to other large MSOs, Green Thumb's stock is a bit on the expensive side, trading at a forward price-to-sales multiple of more than six:

GTBIF PS Ratio (Forward) Chart

GTBIF PS Ratio (Forward) data by YCharts

However, the knock on Trulieve is that its business may be too heavily dependent on Florida (although its recent acquisition of Harvest Health does help to diversify its operations) and Curaleaf's bottom line isn't as impressive, with the company still incurring net losses. Comparatively, Green Thumb isn't trading at a high premium given the factors noted above. While it may not be a dirt cheap buy, it definitely isn't an overpriced stock to be holding right now. 

Should you buy the stock today?

Overall, Green Thumb provides cannabis investors with some good value. It's in some promising markets, it's profitable, and it's generating growth and positive cash flow. It has all you can ask for, all while being one of the top marijuana companies in the country.

In the past six months, its shares are down 10%, providing a good opportunity for a discounted entry. This sleeping giant could be one of the better pot stocks to be holding in the years ahead, especially as more states legalize marijuana and more opportunities arise. If you don't already have an MSO in your portfolio, Green Thumb is an investment worth considering.

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

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