The potential for marijuana legalization at the federal level in the U.S. has been tempting investors for years. When the Biden administration came into office in February, it looked as if a major change was going to make millionaires out of many cannabis investors practically overnight. For some who got in extremely early, that dream has come true. For those holding on to a longer term strategy, dreams began falling apart in March as stock prices began a lengthy tumble downward.

But the dream doesn't have to end just yet for the long-term investor. Green Thumb Industries (OTC:GTBIF) is one of a handful of large multi-state operators that have used 2021 as a springboard toward expanded growth -- and, dare I say, profits. And coming out of its third-quarter earnings release, there are three reasons why it's a buy for 2022.

cannabis farmer giving thumbs up in field of plants while holding tablet

Image Source: Getty Images

1. Growing revenue with a state-by-state approach

Consistent and year-over-year revenue growth are two factors investors are looking for when measuring any investment. Green Thumb checks off these boxes after its Q3 earnings release on Nov. 10, highlighted by $234 million in total revenue, which increased at a rate of 5.3% over Q2, and a more dramatic 49% rise for Q3 on a year-over-year basis. 

Helping drive the growth in revenue is a higher number of sales transactions. The company stated that all 14 markets in the U.S. in which it operates are generating revenue, and in comparable stores -- meaning those open for at least a year -- sales went up by 14% for the quarter on a year-over-year basis. And that's all being done within the states where marijuana sales is legal, without federal legalization.

2. Positive net income leads to expanded growth

The rise in revenue led to a fifth consecutive quarter of positive net income, at $0.08 per share, leaving the company with a strong cash balance. After a seventh consecutive quarter of positive cash flow from operations, the company had $285 million in cash, which covers its outstanding debt at a ratio of 1.4 to 1.

Green Thumb has used its cash smartly, expanding in markets with projected growth potential. During Q3 the company began making good on its purchase of Dharma Pharmaceuticals in Virginia by opening two of its Rise dispensaries, focusing on sales of medical marijuana. Under the license obtained from Dharma, Green Thumb has the opportunity to open four more dispensaries in the state.

According to Headset, a leading market research firm providing insights to cannabis consumer trends, Virginia's projected market opportunity for adult-use sales is $458 million in the first year of sales, with sales slated to begin in January 2024. The research firm likens Virginia's market to that of Michigan in terms of population size and currently operating medical cannabis programs. In October of this year alone, Michigan saw sales of $158 million, representing 54% year-over-year growth for the month. If Virginia sales follow that path, it will outgrow first-year sales projections quickly.

Green Thumb also expanded during the quarter, entering Rhode Island, and added dispensaries in Massachusetts, New Jersey, and Pennsylvania.

3. Downward pressure on stock prices leads to a lower buying price

Unfortunately, the Q3 positive net income of $0.08 missed analysts' consensus estimates by a penny. The initial response by investors to revenue and earnings jolted the stock upward 15%, but after the smoke cleared just five short days later, the stock continued its downward trend it's been experiencing for most of 2021. 

In addition to the company's profit missing analysts' mark, the company also took on $33 million in new debt against its $250 million facility since the quarter close. Now, as noted by MJBizDaily, a new requirement by regulators in Pennsylvania, where Green Thumb has 14 dispensaries, is forcing licensed operators to resubmit vaporized products that contain additives by Nov. 30 for reapproval. Non-compliance could result in license suspensions or revocation. Depending on whether products are reapproved, that could impact the 630,000 medical marijuana program members, and could put a major dent in what has become a nearly-$900 million market in the state. 

As we get further into the Biden administration with no clear resolution at a federal level for marijuana legalization, some investors may be growing weary. Downward pressure on the broader cannabis market is taking a toll. Green Thumb's stock currently sits around $23, down 38% from its Feb. 15 price.

The stage is set for a robust 2022

For long-term investors, or those looking into Green Thumb for the first time, the combination of growing revenue/positive income plus expansion, and a drastically lowered stock price, could be the recipe for success. The company has increased its retail footprint by 27%, going from 51 to 65 locations during 2021. And according to Statista, legal recreational marijuana sales are expected to double in the next five years, along with an increase in the number of marijuana consumers. These are all great reasons to buy Green Thumb stock while its price is well below analysts' consensus average 12-month price target -- $49 -- offering an alluring 118% premium to today's price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.