A Top Pot Stock to Think About
It’s easy to grow and sell pot. It’s not so easy to do it legally. It’s even harder to do it legally and turn a profit.
The blunt reality is, while we’ve seen a green wave of social and regulatory momentum in the U.S., the legal cannabis industry is highly regulated.
There are many hurdles a company has to go through to build a sizable presence in the legal pot industry. Plus, even in states where recreational marijuana use is allowed, legal pot companies still have to compete with the illicit market. In fact, many cannabis operators are still incurring losses quarter after quarter.
And that, my dear reader, is why Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF) deserves your attention.
Green Thumb is a vertically integrated cannabis company headquartered in Chicago. It has 13 manufacturing facilities, 97 licenses for retail locations, and distribution operations across 12 markets, reaching 150 million Americans. (Source: “Investor Presentation: May 2021,” Green Thumb Industries Inc, last accessed May 25, 2021.)
The company has a portfolio of six brands: “Beboe,” “Dogwalkers,” “Dr. Solomon’s,” “incredibles,” “Rhythm,” and “The Feel Collection.” They span the topicals, edibles, vape, and flower categories.
Like many American pot stocks, Green Thumb Industries stock is listed north of the border on the Canadian Securities Exchange. In the U.S., GTBIF stock trades over the counter.
As mentioned above, one of the biggest challenges for cannabis operators is achieving a positive number on the bottom line. And that’s where Green Thumb Industries stock stands out.
According to Green Thumb’s latest earnings report, the company generated a generally accepted accounting principles (GAAP) net income of $10.4 million in the first quarter of 2021. (Source: “Green Thumb Industries Reports First Quarter 2021 Results,” Green Thumb Industries Inc, May 12, 2021.)
This marked the company’s third consecutive quarter of positive GAAP net income.
Considering how most other companies have been doing in this early-stage legal cannabis industry, Green Thumb has accomplished an impressive feat.
The main reason investors are attracted to pot stocks these days is their growth potential. On that front, Green Thumb’s numbers don’t disappoint.
In the first quarter of this year, the company generated $194.4 million of total revenue, representing an 89.5% increase year-over-year.
Green Thumb Industries Inc’s top-line growth was mainly driven by increased scale in its Consumer Packaged Goods and Retail segments, especially in Illinois and Pennsylvania. The company expanded the distribution of its branded products, opened 13 new stores, and enjoyed higher traffic at its existing stores during the quarter.
During the same quarter, Green Thumb’s gross profit more than doubled year-over-year to $110.9 million. Note that it’s not just the absolute value that went up. As a percentage of revenue, the company’s gross margin expanded from 51.6% to 57.0%, reflecting increased scale in the Consumer Packaged Goods and Retail businesses.
It’s a similar story when you look at adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). In the first quarter of 2021, Green Thumb Industries Inc’s adjusted EBITDA was $71.4 million (36.7% of revenue), compared to $25.5 million (24.9% of revenue) in the year-ago period.
For a fast-growing company in an expanding industry, having this kind of scale-driven operating leverage is truly great.
Other than earning more than $71.0 million in adjusted EBITDA and more than $10.0 million in net income, Green Thumb delivered $39.7 million of cash flow from operations. That’s the fifth consecutive quarter of positive cash flow.
“We believe cannabis is the next great American growth story,” said Green Thumb’s founder, chairman, and chief executive officer, Benjamin Kovler. (Source: “Green Thumb Industries Inc. (GTBIF) CEO Benjamin Kovler on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, May 13, 2021.)
“Many of the classic American themes over the last 250 years exist in the story of the cannabis in America in this century. [sic] We believe things are changing in America and Green Thumb is well situated to take advantage of that change for our stakeholders.”
Kovler added, “Rest assured as large owners of the business ourselves, we are aligned with shareholders.”
Green Thumb Industries Inc (OTCMKTS:GTBIF) Stock Chart
Chart courtesy of StockCharts.com
There are plenty of pot stocks trading in the market. And due to consumers’ increasing demand for legal cannabis products, many pot companies have been enjoying growing sales. But not everyone can turn increasing revenue into profits on the bottom line. In fact, most cannot at this point.
And that means the challenge for pot stock investors is figuring out which companies will be around in the long run. After all, a money-losing business cannot last forever.
Looking at the above Green Thumb Industries stock chart, we see that GTBIF stock has pared some of its earlier gains, but because the company gushes profits when many of its peers are losing money, Green Thumb Industries Inc could have a better chance of becoming a winner in the long run.