Green Thumb Industries Inc: A Top Pick for Pot Stock Investors?

Green Thumb stockThis Pot Stock Deserves a Special Look

If you are reading this article, chances are you already know about the growth potential of the cannabis industry. The big question for most pot stock investors is: which companies are the best? Looking around, there are already dozens of cannabis companies trading in the stock market, and many more are on their way to becoming public.

As a risk-averse investor, I generally prefer stocks that trade on the New York Stock Exchange or Nasdaq. But due to the nature of the cannabis industry, the best pot stocks may actually come from a smaller exchange north of the border.

In particular, there is a cannabis company called Green Thumb Industries Inc (OTCMKTS:GTBIF, CNSX:GTII) that has been delivering some serious returns to investors. It is listed on the Canadian Securities Exchange under the ticker symbol “GTII.” U.S. investors can find the stock trading over the counter under the ticker “GTBIF.”

The first thing to note about Green Thumb stock is that even though it is listed in Canada, the company is very, very American.

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Green Thumb Industries Inc was founded in Chicago in 2014, growing to become one of the leading cannabis consumer-packaged goods companies in the country. It is vertically integrated with 13 cultivation and manufacturing facilities, six consumer products brands distributed to 12 states, 48 operating stores, and 96 retail licenses. (Source: “Investor Presentation September 2020,” Green Thumb Industries Inc, last accessed October 9, 2020.)

Now, the main appeal of the cannabis industry is the sheer rate of growth. As the regulatory environment evolves and consumers are going from the illicit market to legal dispensaries, legal cannabis sales have been booming.

However, this does not mean pot companies are immune to outside shocks. In particular, as the COVID-19 pandemic hit the U.S. economy, quite a few cannabis companies experienced sequential declines in their business in the second quarter.

And that’s one of the reasons why Green Thumb Industries Inc stands out. In the second quarter of 2020, the company generated $119.6 million in total revenue, which represented a 16.6% increase from the first quarter. (Source: “Green Thumb Industries Reports Second Quarter 2020 Results,” Green Thumb Industries Inc, August 12, 2020.)

As I said, the company has its own brands. These include “Beboe,” “Dogwalkers,” “Dr. Solomon’s,” “incredibles,” “Rhythm,” and “The Feel Collection.” In the second quarter, Green Thumb’s branded product sales grew 21.6% sequentially.

For a company that also has a strong retail presence, same-store sales make for a key performance metric. Usually, the number is compared to that of the previous year. However, since we want to look at how Green Thumb Industries Inc handled the pandemic shock, it’s worth doing a quarter-over-quarter comparison.

On a base of 40 stores, Green Thumb’s sequential quarter-over-quarter comparable sales were up 8.3% in the second quarter.

One of the reasons behind the resilient retail performance was that, in response to the pandemic, the company’s retail team quickly ramped up deliveries, started offering curbside pickup, and launched an ecommerce platform.

The business became more lucrative, too, as Green Thumb’s gross margin expanded from 51.6% to 53.2% in the second quarter. Meanwhile, the company’s adjusted operating earnings before interest, taxes, depreciation and amortization (EBITDA) grew 38.6% sequentially to $35.4 million.

If you look at the year-over-year comparisons, the results are even more impressive: the company’s total revenue in the second quarter was up a whopping 167.5% from a year ago, while comparable sales growth exceeded 75.0% on a base of 16 stores.

Notably, Green Thumb Industries Inc’s revenue in the first half of 2020 already exceed full-year revenue in 2019.

However you look at it, this pot company is firing on all cylinders, and even the COVID-19 pandemic hasn’t been able to stop that growth momentum.

Green Thumb Industries Inc (OTCMKTS:GTBIF) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Market participants have noticed the solid performance of this cannabis company. Despite tumbling in the market sell-off earlier this year, Green Thumb stock made a swift recovery; it is actually up nearly 60% year to date.

At the end of the day, what we are looking at here is a cannabis company that generated over $100.0 million in revenue in the most recent quarter (in fact, it was the second consecutive quarter in which Green Thumb Industries Inc exceeded $100.0 million in sales). That is a very impressive milestone for any company in the cannabis industry, let alone a stock that trades over-the-counter in the U.S.

As the company launches more products and opens more retail locations (it has a pipeline of licences to potentially double its opened stores), I wouldn’t be surprised to see GTBIF stock delivering further returns to its shareholders.