Green Thumb Industries Price Target Raised By Cantor As It Reports Q2 Results, 85.4% YoY Spike In Revenue

Cannabis company Green Thumb Industries Inc. GTII GTBIF, the owner of Rise Dispensaries, revealed on Wednesday after the market close that its revenue spiked 85.4% year-over-year and 14.1% sequentially - 7% above FactSet consensus - reaching $221.9 million in the quarter ended June 30, 2021.

In its second-quarter earnings report, the company posted a positive adjusted EBITDA of $79.3 million, which accounted for 35.7% of revenue, representing an 11.1% sequential improvement or 6% above FactSet consensus. In comparison to the prior year's period, that's more than a double growth.

The Analyst

Cantor Fitzgerald's Pablo Zuanic kept an 'Overweight' rating on GTI's stock, increasing the price target to $46 from $43.50.

The Thesis

In its note published Wednesday evening, Zuanic explained that even though the company did not open new stores during the quarter, it benefited from a full quarter of sales from five stores opened in the previous period as well as the conversion of an Essence store in Las Vegas to the Cookies banner, the acquisition of Liberty Compassion, Inc.'s two stores in Boston and West Springfield, Massachusetts and a fully operational production facility.

Retail sales improved 15% sequentially, reaching $150 million compared to an 8% increase during the first quarter with same-store sales up 7% sequentially, compared to 2% improvement in the prior period.

The analyst added that the sales growth was mainly driven by operations in Illinois and Pennsylvania, as the largest contributors.

In addition, the second-quarter results included sales from 58 stores in 11 states.

"We estimate about 61% of the company's retail sales were comprised of own brands," Zuanic said, adding that new capacities in New Jersey, Ohio and Pennsylvania "should contribute to revenues by mid-2022."

And while he doesn't expect "meaningful capacity changes" in the last six months of this fiscal year, the third quarter "should capture the full quarter benefit of the Illinois expansion."

Zuanic added that "growth may be more driven by retail" during the second half of 2021, as it's expected to "benefit from the introduction of flower in the medical programs" in both New York and Virginia.

Positioning For Success

Subsequent to the quarter-end, the company added four stores - the last one being the store in Warminster, Pennsylvania. Currently, it operates 62 stores nationwide.

Zuanic said that GTI is "doubling" capacity in Pennsylvania and also expanding operations in New Jersey and Ohio, all of which "should come through only by mid-2022."

The company is also building a marijuana cultivation and manufacturing facility in New York in anticipation of the launch of recreational cannabis sales in the state.

Apart from being well-positioned to benefit from the legalization of recreational cannabis in New Jersey, as one of the three licensees in Virginia in addition to Jushi Holdings Inc. JUSH JUSHF and Columbia Care Inc. CCHW CCHWF, GTI is poised to benefit from recreational sales there if launched by January 2024.

With MSOs ETF down 13% over the past three months and Green Thumb up 4% over the same period, the company is "outperforming all major MSOs," Zuanic noted.

His estimates for CY22 sales and EBITDA are "above FactSet consensus by 11% and 7%, respectively," with Green Thumb trading at 5.4x sales and at 14.5x EBITDA. In addition, Zuanic said, "the stock premium is well deserved."

"We only increased our forward sales and EBITDA estimates slightly, but we see upside; our CY22 sales estimate of $1.29 billion is 11% above consensus," Zuanic concluded.

Price Action

GTI’s stock traded 4.63% higher at $32.75 per share, at the time of writing Thursday early afternoon.

Photo: Courtesy of Chris Liverani on Unsplash