Shares of cannabis company Green Thumb Industries (GTBIF +0.85%) have climbed more than 20% in the past three months while other cannabis stocks are still floundering. Over that same period, the AdvisorShares Pure Cannabis ETF and the ETFMG Alternative Harvest ETF are both down more than 17%.
Over the past month, President Joe Biden stated his objective to pardon thousands of people convicted at the federal level of simple marijuana possession. He also asked the attorney general to take another look at how the drug is classified at the federal level, which currently puts it on the same Schedule 1 level as heroin.
President Biden's statements brought renewed optimism that federal decriminalization may be on the way, which would change everything for cannabis companies that are hampered by a labyrinth of state laws regarding medical and adult-use cannabis. The U.S. cannabis market was valued at $10.9 billion in 2021 and is expected to become a $40.5 billion market by 2030, with a compound annual growth rate (CAGR) of 14.5% from 2022 to 2030, according to a report by Nova One Advisor.
Green Thumb, based in Chicago, could be having a moment, but that moment should extend throughout next year. The company, which has 77 retail locations throughout 15 states, is setting itself up for continued growth for three reasons.
OTC: GTBIF
Key Data Points
The company is consistently profitable, giving it a solid base to grow
Green Thumb has had eight consecutive quarters of positive net income, something no other multi-state operator (MSO) can claim, with most of them using the non-GAAP (adjusted) measurement of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to show profitability instead of the stricter GAAP net income metric. This continued profitability is impressive considering inflation headwinds and pricing pressures have lowered margins for so many other cannabis companies.
It would be one thing if Green Thumb was a small cannabis company. But in the last quarter, it reported the third-highest revenue among U.S. cannabis companies with $254.3 million, up 14.6% year over year and 4.8% sequentially, as well as $24.4 million in net income, or $0.10 in earnings per share (EPS). Its first-half revenue of $496.9 million represents a rise of 19.4% over the same period in 2021.
How much of that good news is priced into the stock? Not much. It trades at a price-to-earnings ratio of around 29.06, which seems reasonable considering the growth expected in the long term for cannabis.
The company also has a stronger balance sheet than Curaleaf Holdings and Trulieve Cannabis, the only two U.S. MSOs with more quarterly revenue.
Data by YCharts.
It will benefit as the Northeast opens more to adult-use sales
New Jersey just opened to adult-use sales this year, and New York, once it gets its regulatory framework fixed, is expected to do so later this year. New Jersey is expected to ultimately produce $2.4 billion in annual adult-use sales by 2026, while New York is seen as a potential $3.8 billion adult-use market by 2024. Green Thumb Industries has a strong presence in both states. It has three dispensaries in New Jersey with licenses for the maximum of four and has a manufacturing facility in Paterson. In New York, the company bought Fiorello Pharmaceuticals in 2019 for $60 million, inheriting its four dispensaries. It also has broken ground on a 450,000-foot cultivation and processing facility in Warwick, near the site of a former prison in the Hudson Valley.
The company has shown the ability to think out of the box with its Circle K plan
On Wednesday, Green Thumb launched a broadside across the bow of the cannabis market in Florida. The company said it plans to pair its RISE dispensaries adjacent to Circle K convenience stores in the state. The "gas and grass" concept would initially be launched at 10 test sites, but if successful, the possibility for expansion would be huge as Circle K has roughly 600 stores in the state.
On Wednesday, the day Green Thumb announced the plan, its stock rose more than 9%.
To Green Thumb founder and CEO Ben Kovler, the move will make cannabis purchases convenient for the state's medical marijuana customers. There is also a ballot initiative currently gathering signatures with the hope of putting the option of adult-use cannabis sales to the state's voters on the ballot in 2024.
"The opening of RISE Express stores at Circle K locations is a game-changer," Kovler said in a release. "Convenience is a strong channel in retail, and people want more access to cannabis. The new RISE Express model is a huge step forward in making it easier and more efficient for patients to purchase high-quality cannabis as part of their everyday routine when stopping by their local convenience store."
