The stock market wasn’t expecting much from the Green Thumb Industries (OTCQX:GTBIF) quarterly report, but the multi-state operator (MSO) reported a solid quarter anyway. The cannabis company still has tons of catalysts to warrant a much higher stock price than the February 2021 peak on Federal legalization hopes, much less the current $12 lows. My investment thesis remains very Bullish on the stock and the general MSO sector.
As with other retail businesses, the MSOs are facing a tough period in 2022 where free government handouts for consumers from prior periods impact the comparable sales and dents the reported revenue growth. For Q1’22, Green Thumb reported revenue growing 25% YoY to $243 million, but revenues were flat sequentially leading to the fears evident in the stock price.
The key here is that comp sales were actually down 3% on the 51 retail stores open more than 12 months. The MSO sector will need to start providing more comp sales details going for11.ward to be considered legitimate investments.
Along with the tough comps, new recreational cannabis markets haven’t opened up in a while. The last major market was Arizona in January last year and Green Thumb isn’t active in that state. The state sold $650 million in recreational cannabis on top of a well-establish medical market leading to a total of $1.4 billion in sales during the year providing a massive revenue boost to MSOs in the state.
The good news is that the MSO has two stores in New Jersey approved for recreational cannabis sales starting on April 21. The company was unwilling to provide any sales data or forecasts for the store other than to share the nearly $2 million sales New Jersey had on the first day with 12 stores open.
As the slow period ends with the launch of New Jersey recreational cannabis leading into a future launch in New York, the CEO made a key point about the business. Investors need to understand growth won’t be linear going forward, but growth will no doubt occur over the next decade:
We continue to have strong conviction in our core thesis and given the opportunity ahead, we will invest in markets where we know demand is coming. As I have said before, growth is not linear and there will be quarter-to-quarter fluctuations depending on when new markets open to adult-use sales as well as the timing of our infrastructure investments. Our preparations in New Jersey positioned us well for demand on Day One, and we feel confident in our playbook for future adult-use transitions.
Green Thumb has a market value of just $3 billion, yet the company just reported a quarter with adjusted EBITDA of $67 million. The quarterly results were even impacted by higher raw material costs and additional infrastructure costs and talent to build up a business for booming sales in the Northeast markets turning to adult-use cannabis in the next few years.
The MSO had EBITDA of over $71 million last year for margins of 37%. While some markets face a tougher pricing environment, the biggest issue is the delay in opening up of recreational cannabis in New Jersey until nearly mid-2022 when the original exception was the start of 2022 at the worst.
Green Thumb beat analyst revenue estimates for Q1’22 and should easily sail past the $1.1 billion revenue target for the year. The New Jersey stores should have monster sales with only 12 locations approved so far for recreational sales and the locations next to New York and Pennsylvania leading to booming demand in the state.
With the New Jersey sales ramp this year and the New York recreational cannabis launch in 2023, Green Thumb should see a huge boost to sales and EBTIDA. Analysts consensus estimates have the 2022 EBITDA topping $300 million and 2023 EBITDA surpassing $450 million. The stock is insanely cheap at less than 10x EBITDA targets for this year and less than 7x 2023 EBITDA targets.
The key investor takeaway is that Green Thumb is exceptionally cheap here. The stock is falling due to the weak market and the management team unwilling to provide positive forecasts for the New Jersey market.
Investors should continue using the market weakness to load up on cheap cannabis stocks like Green Thumb.
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