Looking for the Best Pot Stocks? Read This
One of the arguments that marijuana stock bears often make is that, because expectations are already sky-high for the industry, it’s nearly impossible for companies to meet them.
But that’s not always the case. Sure, the legal cannabis industry has already grown by a lot in recent years, and pot stocks aren’t cheap. However, despite the high expectations, some companies are still capable of outperforming them.
Just take a look at Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF) and you’ll see what I mean.
Founded in 2014, Green Thumb Industries is a vertically integrated cannabis company headquartered in Chicago. Over the years, it has grown into an established player both as a cannabis consumer packaged goods company and a retailer.
Green Thumb has six consumer product brands—“Beboe,” “Dogwalkers,” “Dr. Solomon’s,” “incredibles,” “Rhythm,” and “The Feel Collection”—that are distributed in 12 states. (Source: “Investor Presentation: May 2021,” Green Thumb Industries Inc, last accessed August 16, 2021.)
On the production side, Green Thumb operates 13 cultivation and manufacturing facilities. On the retail side, the company has licenses for 111 locations. It has 58 retail locations that are currently operating.
If you’ve been following the cannabis industry, you’ll know that, with this kind of presence, Green Thumb is already one of the leading multistate operators. And that presence is reflected in its valuation. As of this writing, Green Thumb Industries stock has a market capitalization of about CA$9.0 billion.
Simply put, Green Thumb Industries Inc is a heavyweight player in the pot sector.
Note that the reason the company’s market cap is quoted in Canadian dollars is that, like many of its peers, Green Thumb Industries is listed on the Canadian Securities Exchange. It is, however, very easy for U.S. investors to get a piece of the action, as the company trades over the counter under the ticker “GTBIF.”
As mentioned earlier, market participants have high expectations for pot stocks, which makes it more difficult for companies to outperform.
Going into this earnings season, expectations were certainly high for Green Thumb Industries Inc. Wall Street projected that the company would generate revenue of $207.5 million and earnings of $0.08 per share in the second quarter of 2021.
To put that in perspective, in the year-ago period, Green Thumb Industries’ revenue was $119.6 million and its net income was negative-$0.06 per share.
Here are the actual results: Green Thumb generated $221.9 million of revenue and net income of $0.10 per share. (Source: “Green Thumb Industries Reports Second Quarter 2021 Results,” Green Thumb Industries Inc, August 11, 2021.)
Simply put, Wall Street was already projecting a 73% year-over-year increase in sales and a bottom line that went from a loss to a substantial profit. But the company managed to top that. Its actual sales grew by 85% year-over-year and it earned $0.02 per share more in net income than what analysts were expecting.
Of course, it’s possible for a company to report strong results and see its share price tumble on the news. After all, given the massive rally over the past year, many stocks these days have to deal with “sell the news” behavior.
GTBIF stock hasn’t been a particularly exciting ticker in recent months, but the company’s latest earnings report did cheer up investors. On the trading day following the release of its second-quarter results, Green Thumb Industries stock jumped by 3.5%.
Green Thumb Industries Inc (OTCMKTS:GTBIF) Stock Chart
Chart courtesy of StockCharts.com
At this point, one might be wondering whether the year-over-year comparison is skewed because, a year ago, the economy was severely impacted by the COVID-19 pandemic and the ensuing lockdowns. Numerous companies were reporting extraordinarily weak results back then.
Well, I can assure you that this wasn’t the case for Green Thumb Industries. In the year-ago period—the second quarter of 2020—the company’s total revenue actually represented a 167.5% increase from the second quarter of 2019. (Source: “Green Thumb Industries Reports Second Quarter 2020 Results,” Green Thumb Industries Inc, August 12, 2020.)
What this means is that, essentially, the company has been delivering strong growth on top of strong growth.
Frankly, that’s exactly why I’ve been bullish on GTBIF stock since it was trading at less than one-third of where it is today.
There are things worth noting behind the company’s headline numbers, too.
For instance, thanks to Green Thumb Industries Inc’s expanded scale in production and distribution of branded products, the company’s Consumer Packaged Goods gross revenue grew by 13% sequentially in the second quarter of 2021.
In its retail segment, the company’s revenue grew by 15% sequentially, driven by both higher traffic at existing stores and new store openings.
Comparable sales (based on 42 stores that were open for at least 12 months) increased by 34%, driven by a higher number of transactions. Sequentially, comparable sales rose by seven percent on a base of 51 stores.
Furthermore, Green Thumb Industries Inc generated $48.3 million in cash flow from operations in the second quarter of 2021. This marked the sixth consecutive quarter in which the company was operating as cash-flow-positive.
The company is well capitalized, too. At the end of June, it had $481.6 million of current assets, including $359.2 million of cash and cash equivalents. Its total debt, on the other hand, was $197.6 million.
Keep in mind that, despite delivering phenomenal growth in recent years, legal cannabis is still a very young industry in the U.S.
If Green Thumb Industries Inc can continue its growth momentum alongside the industry’s expansion, I wouldn’t be surprised to see its revenue and profits take another big step forward. That would help juice the price of Green Thumb Industries stock.