Why I Wouldn’t Count Out GTBIF Stock

Investing in marijuana stocks continues to be a difficult venture, despite the positive microeconomic and macroeconomic developments.

Pot companies have become leaner as they ramp up their revenues and move toward generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA). But with the bearish stock market sentiment against taking on risk, many marijuana stocks have been decimated.

A look at the ETFMG Alternative Harvest ETF (NYSEARCA:MJ), a broad measure of the leading marijuana stocks in the U.S. and Canada, shows us the story.

As the following chart shows, ETFMG Alternative Harvest ETF continues to show significant price deterioration in 2022, following a big decline in 2021.

Chart courtesy of StockCharts.com

It's obvious that investors are staying away from high-risk investments, but the scale of the selling capitulation has been excessive.

For contrarian investors who are willing to wait a few years, the payoff from cannabis stocks could be tremendous. I view the weakness in marijuana stock prices as an aggressive contrarian opportunity.

One play on the U.S. pot sector that has an attractive risk/reward trade-off is mid-cap Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF). It's a vertically integrated marijuana company that does everything from research and development to cultivation, processing, and retailing.

Green Thumb Industries' sales are carried out via its own stores and third parties. The company has 17 manufacturing facilities and 75 retail locations in 15 U.S. markets. (Source: “Investor Relations,” Green Thumb Industries Inc, last accessed July 15, 2022.)

Chart courtesy of StockCharts.com

Green Thumb Industries Inc's Revenues Set to Surpass $1 Billion

Unlike many marijuana companies, Green Thumb Industries is profitable.

Its revenues were $893.6 million in 2021 and they're expected to grow by 16.9% to $1.0 billion this year and by 24.7% to $1.3 billion in 2023. These revenue estimates are outstanding. (Source: “Green Thumb Industries Inc. (GTBIF),” Yahoo! Finance, last accessed July 15, 2022.)

Green Thumb Industries is trading at an attractive 1.7 times its consensus 2023 revenue estimate. In my view, this is a compelling valuation.

Green Thumb Industries Inc earned an adjusted $0.34 per diluted share in 2021 and is expected to increase that to $0.45 in 2023. The company's valuation, which is around 21 times its consensus 2023 earnings-per-share (EPS) estimate, is quite reasonable.

For now, Green Thumb Industries Inc has a manageable balance sheet with cash of $174.5 million and debt of $439.3 million. Accounting for its debt and cash, the company's enterprise value to revenue ratio is quite reasonable at 2.6 times.

Analyst Take

With shares of Green Thumb Industries Inc down by a whopping 57% this year and vastly underperforming the Nasdaq and S&P 500, it might be an opportune time for investors to consider the stock.

While Green Thumb Industries stock could still go lower, investors might want to accumulate a small position and add to it on price weakness.

The long-term prospects for the recreational pot sector continue to be bullish, and my view is that it’s just a matter of time before marijuana stocks like GTBIF stock begin to edge higher and hold on to gains.