The promise of long-term growth has attracted many investors to the cannabis industry. And one of the top multi-state operators (MSOs) out there today is Green Thumb Industries (GTBIF -5.60%).
The company is in 15 U.S. state markets and has 77 retail locations. Its sales have grown significantly over the years -- although things have slowed down in the industry of late.
Here's a look at how you would have done if you bought shares when Green Thumb went public and if the stock is a good buy today.
The stock began trading in June 2018
On its first day of trading, June 14, 2018, Green Thumb Industries stock closed at $7.38. If you invested $10,000 into the cannabis stock at around that price, you would have had 1,355 shares.
While Green Thumb would go on to rise to more than $30 in 2021, it (along with many other growth stocks) has come crashing down in the current bear market.
On Monday, the stock closed at just $7.51 -- not even a full 2% higher than where it was at four-plus years ago. That $10,000 investment in 2018 would be worth just $10,176 today.
Suffice it to say that investors wouldn't be too thrilled with the return on Green Thumb's stock as it stands right now. But for investors who sold the stock near or at its peak in 2021, their profits would have looked a whole lot better.
Whether or not the stock can turn things around is going to depend largely on the company's growth -- and that hasn't been looking strong of late.
Green Thumb's growth rate has been falling
A big problem for Green Thumb and many other cannabis companies right now is that the industry as a whole isn't doing well. The economy is struggling with inflation, and that means consumers have less to spend on discretionary purchases such as cannabis. But a slowing growth rate hasn't exactly been a new problem for Green Thumb:
GTBIF revenue (quarterly YoY growth) data by YCharts. YoY = year over year.
Green Thumb's growth rate has been falling sharply in recent years, and that's even with new states legalizing marijuana. In the company's most recent earnings release, it noted that New Jersey, which commenced the sale of adult-use cannabis just last year, was a key part of its growth for the period ending Sept. 30, 2022. That means that without the new market opening up, Green Thumb's sales growth of 12% would have been even lower.
The bright spot is that profitability and cash flow look good
What's encouraging is that, unlike many other marijuana companies, Green Thumb has turned a profit, with a great deal of consistency. Last quarter, the company reported positive net income for the ninth straight period.
This isn't the same as the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) that many marijuana companies often report and prioritize; Green Thumb has achieved true, unadjusted accounting profits. A marijuana company might report a profitable quarter here and there (usually due to one-time gains or other income), but to do it consistently is impressive.
And not only has Green Thumb been profitable, but its operating cash flow has also been positive, which is another great sign.
GTBIF operating income (TTM) data by YCharts. TTM = trailing 12 months.
Should you invest in Green Thumb?
Shares of Green Thumb have fallen by more than 50% over the past year. The cannabis industry is in a rut as federal legalization or any type of meaningful reform doesn't appear to be coming anytime soon.
Meanwhile, investors have also pivoted away to safer stocks in the current bear market, which means cannabis stocks by and large have been dumped, even if they've been better than most (like Green Thumb has).
But the company's strong financials and its presence in new and emerging markets such as New York and New Jersey put the stock in a good position to bounce back as the economy improves and demand inevitably strengthens.
I'm confident the stock can rise from where it is today and generate some good returns for investors. But the risk is that it could still be a rough ride in the short term. So unless you're willing to be patient and accept the fact that it may be at least a year or more before any bullishness returns to the sector (and even that could be an optimistic view), you might be better off waiting on the sidelines for now.
