Green Thumb Industries (GTBIF -3.20%) is one of the stars of the marijuana industry in the U.S., and that's why many investors are wondering whether it's ripe for investment. But with its shares collapsing by 49.9% over the last year, alongside many of its competitors, some hesitation is entirely understandable and warranted.

So is Green Thumb a good pick at the moment, or will it burn your money? Let's figure it out. 

Why the time is right to buy this stock

Green Thumb is a typical multi-state operator (MSO) in the cannabis industry, producing a wide array of marijuana goodies ranging from tinctures to pre-rolls, vaporizers, and dried bud. It presently competes in enough state markets to serve roughly 50% of the population of the U.S., which is quite an accomplishment for a business that has only 77 stores as of early 2023. Sales from those locations brought in $259.3 million in Q4 of 2022, a 6.4% rise year over year, while the number of units sold climbed by 28%. 

That growth might not seem like it's very fast-paced, because it isn't. But the more important factor to focus on is that it's occurring while Green Thumb is narrowly profitable, reporting diluted earnings per share (EPS) of $0.05 for 2022. Most of its peers are still struggling with reaching profitability on an adjusted basis while using a handful of accounting concessions to juice their results. So if your heart is set on making an investment in a cannabis stock at the moment, this company is one of the better bets, and its rate of growth is not in any way a dealbreaker, as growth is slow everywhere. 

Moving forward, Green Thumb will likely be spending more money on marketing to try to make its brand power more formidable. While the results of its branding push may or may not deliver the more defensible market share that management is doubtlessly hoping for, at a minimum the move makes it less likely that competitors will be able to go without working on their own brands, as they'd be falling behind.

Increasing Green Thumb's brand power will be a long-term project. But it'll probably succeed in building a few consumer favorites eventually, thereby locking in at least some additional recurring revenue. So it's reasonable to think of its efforts as a gentle tailwind for now. 

Mind the headwinds

There are a couple of factors that should give investors pause when considering buying Green Thumb right now. First, the cannabis industry in the U.S. continues to experience a glut of cannabis, which drives selling prices down and compresses the margins of the operators. Green Thumb's CEO even pointed to the problem in his remarks about the company's decline in gross margin performance, which was 49.5% in 2022 compared to 55.1% in 2021, and the oversupply might not get better anytime soon. 

Another problematic factor is that dried cannabis flower makes up the largest segment of its sales. Dried flower is inherently a low-margin good, unlike vaporizers or edibles, and there aren't many ways for a business to differentiate its buds from competitors. Furthermore, it means that the company will have a harder time retaining its market share under the conditions of a cannabis glut if it doesn't slash prices.

Overall, while Green Thumb is likely to scrape by during the ongoing cannabis industry winter, there aren't really any compelling reasons to buy its shares immediately. More trouble in the stock market for growth stocks is all but guaranteed, as inflation hasn't fallen much and more interest rate hikes are inbound, and separately the cannabis market will also take some time to recover. Plus, the business isn't planning any major initiatives that will have a tangible payoff in the near term. 

Nonetheless, if you can tolerate the prospect of your investment losing a bit more value in the next year or so before rebounding in the years that follow, there aren't any glaring red flags with Green Thumb itself at the moment, nor are many of its competitors faring much better in the current mix of difficult market and industry conditions. While I don't plan to buy it anytime soon, it isn't the worst idea to start building a position in the stock if you're interested in capturing the long-term growth of the cannabis industry in the U.S.