As Green Thumb's Shares Go Up Post Earnings, Analyst Says Stock Will Benefit From Cannabis Legalization

Green Thumb Industries Inc. GTBIF released its third-quarter results Thursday with revenue of $233.7 million, up by 48.7% year-over-year. Adjusted operating EBITDA grew 2.4% sequentially and 52.6% year-over-year to $81.2 million (34.7% of revenue).

The report also highlighted a seventh consecutive quarter of positive cash flow from operations, delivering $82.8 million year-to-date and a fifth consecutive quarter of positive GAAP net income, delivering $20.2 million ($0.08 per diluted share).

The Analyst

Cantor Fitzgerald’s Pablo Zuanic reiterated an ‘Overweight’ rating on the stock and raised the price target to $54 from $38.

The Thesis

The analyst raised the price target on Green Thumb’s stock in keeping with a new valuation methodology for Cantor’s top picks.

Rep. Nancy Mace (R-SC) is supposed to file a GOP cannabis reform proposal, the States Reform Act, on Monday and hold a press conference the same day, which would likely push earnings season to the back burner while pushing MSOs to the front, Zuanic explained in his Thursday analyst note.

“The tide will likely lift all boats, but we prefer the more-established operators that have greater breadth and depth, rec optionality, and that would fare well should the final compromise bill come with disruptive changes. Green Thumb fits those criteria.”

In relation to third-quarter results, Zuanic noted that the company was in line with estimates with little sequential growth but, nevertheless, kept stable margins. Green Thumb seems to be well-positioned to advantage from “the wave of recreational legalization in the East.”

Based on the increasing probability of some form of legalization and the even-higher probability of uplisting on the U.S. exchanges for the U.S. MSOs, Zuanic presented a new price target methodology for Cantor’s top picks: “We take a blended approach of 1) 2025E EBITDA at 18x brought to present value at a 10% discount rate ($70 by Dec 2022), and 2) a premium to the sector multiple (70% for GTBIF on the 8.6x sector multiple) on our 2023 estimates, or $37 by Dec 2022. “

Price Action

Green Thumb’s shares were trading 8.30% higher at $23.61 per share at the time of writing Thursday morning.

Photo: Courtesy of Oren Elbaz on Unsplash