Cannabis stocks have had a rough couple of years. Cannabis stock prices are suffering as a result of rising inflation and a lack of progress toward federal legalization. However, this has provided an opportunity for investors to purchase these growth stocks at a discounted price. The majority of these cannabis businesses have strong fundamentals and have established themselves to capitalize on the evolving industry.
Green Thumb Industries (GTBIF 2.46%), based in Illinois, may pique the interest of long-term investors with a high risk tolerance. Let's take a look at how Green Thumb performed last year and what the future holds.
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Green Thumb's revenue growth streak is impressive
Though cannabis is federally illegal in the U.S., the state markets are growing rapidly. In a highly competitive industry, Green Thumb Industries has managed to quadruple its revenue from $216 million in 2019 to $894 million in 2021.
Not only that, its total number of stores has grown from 39 dispensaries in eight states in 2019 to 77 dispensaries in 15 states. If and when cannabis is legalized, Green Thumb is well positioned to capture the larger market.
Green Thumb is also one of the rare cannabis companies to be consistently profitable. It has generated positive net income according to generally accepted accounting principles (GAAP) for nine consecutive quarters.
In the first nine months of 2022, its revenue increased 17% year over year to $758 million. Green Thumb may find more business in Pennsylvania and Florida soon. Neither state has legalized recreational marijuana yet, but there have been some developments. In the United States, Green Thumb operates stores under the Rise brand. It now has seven Rise locations in Florida. Its recent lease agreement with Circle K, a global convenience store chain in Florida, will allow it to open 10 Rise Express locations. Meanwhile, Pennsylvania has 16 Rise locations.
In addition to these two states, industry experts predict that Maryland, Ohio, and Minnesota might legalize cannabis this year. Green Thumb has a few stores in each of these states.
While revenue growth in the cannabis industry is slowing, customers regard cannabis as a consumer staple. As a result, despite rising inflation, all demand for marijuana may not be lost. It will be interesting to see if Green Thumb can continue to grow its revenue in 2023.
We will know more about Green Thumb's plan for the year when it releases its fourth-quarter 2022 results on Feb. 28.
Is this pot stock a buy now?
Although federal legalization will open up many doors for cannabis businesses, Green Thumb can increase its revenue and profits even in state markets. If the company decides to expand, international markets, particularly Europe, which is currently booming, represent a significant opportunity. Peer Curaleaf Holdings already has exposure in Europe, which is working to its advantage.
Estimates show the global cannabis market is growing at an exponential rate, and it is expected to be worth $84 billion by 2027. Meanwhile, the European cannabis market could grow at a compounded rate of 61% by 2028, reaching a value of $14 billion.
Green Thumb is valued cheaply now, trading at a price-to-sales ratio of 2.1, making this the right time for investors to buy and hold this growth stock for the long run. When the cannabis market evolves, stocks of stable and profitable companies like Green Thumb will be too expensive. Wall Street analysts on average see a potential upside of 147% for Green Thumb's stock in the next 12 months. However, note that the cannabis industry is risky, so a diversified portfolio will be a good idea to mitigate some of the volatility.
