Green Thumb Industries' Positive Q3 Report Compels Analyst To Place It Among 'Best-Managed MSOs'

Green Thumb Industries GTBIF reported Thursday that its total revenue for Q3 2022 was $261.2 million was up 2.7% sequentially and up 11.8% from $233.7 million in the prior year period. The company noted that its revenue growth was primarily driven by increased retail sales in New Jersey, reflecting the legalization of adult-use cannabis, increased retail sales in Illinois, 12 additional retail locations versus third quarter last year, and increased traffic in the company’s 77 open and operating retail stores.

Cantor Fitzgerald Pablo Zuanic’s Take

For starters, Zuanic stays Overweight and increases GTI’s 12-month price target to $36 from $32.

Regarding New Jersey’s growth, there’s more to come in Florida, Pennsylvania and possibly Connecticut, where adult-use sales are expected begin by mid-2023. 

“We only see some impact in 2023E numbers from the FL deal with Alimentation Couche-Tard ANCTF, but how that agreement is expanded over time may be a bigger driver of sentiment," Zuanic said. "We continue to think Green Thumb is arguably among the best-managed MSOs, if we go by balance sheet strength, EBITDA/operating cash flow conversion, and profit margins (for a large footprint). In that context, recent Board turnover does raise some concerns, but management made it clear today that corporate governance remains a top priority as the company plans and looks forward to the day it can list on a major US exchange.”

Valuation and Price Target: “The stock is up 22% in the last month vs. +15% for the MSOS ETF, and +5% for the S&P500. Recent sector volatility makes price targets and valuation multiple discussions less relevant, in our view,” Zuanic noted. “More than fundamentals, we think bigger drivers of sentiment right now for MJ stocks are the potential for SAFE Plus passage, potential copycats of of the Canopy USA structure (if approved by the US exchanges), sectoral M&A, and (for those with international ambitions) the German legalization process. All that said, on our CY23 estimates, Green Thumb trades at 2.7x sales (MSO average 2.1x) and 8.3x EBITDA (9.2x). We think the stock is deserving of a premium to peers."

Outlook. "Management implied it does not have 'much juice' for 4Q (in terms of new stores and capacity), and is pointing to a mid single digit seq drop in sales for 4Q. Recent capex has been mainly focused on FL, MN, NJ, NY, VA, but that should come through operationally mostly during 2023E (especially 2H23E), as per guidance," Zuanic said, adding that with the start of rec sales in Rhode Island possibly in early December as well as continued growth in New Jersey "4Q has a seasonal bump."