Green Thumb Industries (GTBIF -0.25%) is one of the more dependable stocks in the beaten-down cannabis space. While the company's shares have fallen more than 2% so far in 2023 and over 51% in the past year, that performance is still better than that of many cannabis stocks.
The AdvisorShares Pure Cannabis ETF is down over 5% this year and over 66% in 2022. The ETFMG Alternative Harvest MG ETF has dropped over 5% in 2023 and more than 56% in the past year.
The long-term opportunity for cannabis sales in the U.S. is still huge because more states are opening up to adult-use sales. New York, despite its slow rollout for recreational sales, will be a significant market for marijuana. New Jersey's adult-use sales did well in its first year and will likely grow. Florida may get recreational sales on the ballot within a couple of years and that would be another growth market.
Cannabis research company Brightfield Group estimates that U.S. legal cannabis sales will top $31.8 billion this year and will reach $50.7 billion annually by 2028.
However, the race to success in cannabis sales is a marathon, not a sprint, and most industry insiders say there will be far fewer marijuana companies in a few years. The ones who can outlast the others are going to be among the lucky few. I think that will require a healthy balance sheet, a disciplined financial approach, and economies of scale. Green Thumb has all three attributes.
The Chicago-based company operates 77 dispensaries and 18 processing facilities across 15 states, focusing on the more profitable limited license states. Here are two reasons to buy the stock now and one reason not to.
The top reason to buy Green Thumb: It's still finding growth
Green Thumb just reported fourth-quarter and full-year results and it continues to grow revenue.
Quarterly revenue came in at $259.3 million, up 6.4% year over year, led by increasing sales in New Jersey, which opened up for adult-use sales in April. Full-year revenue rose 14% to $1 billion.
What's impressive is the company is doing more with less compared to other large multi-state operators (MSOs). In Curaleaf's (OTC: CURLF) last quarter, it reported $339.7 million in revenue, but it has nearly twice as many dispensaries (142). Trulieve (OTC: TCNNF) posted $300.8 million in third-quarter revenue, but it has more than 180 dispensaries. With more sales per store, Green Thumb is saving on rent and labor costs.
Data by YCharts.
The second reason to buy Green Thumb: Its conservative management
Green Thumb hasn't been as active in buying up competitors, and consequently, it isn't saddled by as much debt as other large MSOs. As of Dec. 31, 2022, it had a total debt of $275.7 million and $175 million in cash, leaving it with only $100.7 million in net debt. That's important considering that financing is difficult for cannabis companies, and with their stocks' lowered values, raising money through stock sales isn't that effective.
Green Thumb CEO Ben Kovler sounded an alarm when he said during the company's fourth-quarter earnings call that "concerns around price compression in our industry are very real. The days of fat margins and easy money in cannabis are waning."
That means mergers will be down and some companies will simply run out of money. Green Thumb will be in a stronger position once that happens.
One reason to stay away from Green Thumb: Its streak of profitability is over
One edge Green Thumb had over almost every other pure-play cannabis company is that it was still profitable -- until this past quarter.
It had posted nine consecutive quarters of positive net income, but over the past three quarters, the company's GAAP net income fell from $31.2 million, to $12.4 million, to a loss of $51.2 million in Q4, or a loss per share of $0.22. In the fourth quarter a year ago, Green Thumb reported income of $22.8 million and earnings per share (EPS) of $0.10. The trend is concerning. The latest quarter's loss includes a non-cash impairment charges of goodwill and asset write-down related to its business in Nevada. Nevertheless, it's still concerning the current economics of the cannabis industry isn't too attractive.
The company still turned a profit for the year, with net income of $12 million, or $0.05 in EPS, compared to net income of $75.4 million, or $0.34 in EPS in 2021.
Price compression, higher labor costs, and inflation are taking their toll on all cannabis companies, so investors will want to see if Green Thumb can reverse the downward earning spiral.
