Investors Would Do Well Buying This Cannabis Stock Despite Depressed Sector Valuations, Analyst Explains Why

It's a challenging time for the cannabis industry and businesses trying to stay afloat amid growing consumer pressure, oversupply in some markets and an evident lack of access to capital. Still, some well-established operators in the space, like Green Thumb Industries Inc. GTII GTBIF seem to be here to stay.

On Tuesday, the cannabis MSO reported fourth-quarter earnings revealing less than a 1% sequential drop in revenue to $259.3 million. Year-to-date sales increased 6.4% due to recreational marijuana sales kicking off in New Jersey and acquisitions made in 2021, Cantor Fitzgerald's analyst Pablo Zuani, who is a speaker at April’s Benzinga Cannabis Capital Conference in Miami, said in his recent note.

The Analyst

Zuanic retained an "Overweight" rating on the company's stock while lowering his 12-month price target to $30 from $32 on reduced estimates.

The Thesis

As noted earlier this week, the company benefited from the launch of recreational cannabis sales in Rhode Island, expansion of medical marijuana sectors in Maryland and Virginia and maturing of New Jersey's marijuana market, Zuanic said, adding that it will continue to profit from exposure to markets that launched recreational programs.

"Green Thumb, in terms of balance sheet and cash flow trends (best EBITDA conversion to cash flow), is in better shape than peers," Zuanic said, calling it a "more established" operator and "more disciplined than most."

Moreover, the company reached $1 billion in annual revenue in 2022, representing a 14% increase compared to $893.6 million in 2021. To that end, Green Thumb remains one of the analyst's top stock picks in the marijuana sector, despite poor cannabis stock valuations.

"Yes, cannabis stock valuations are depressed, but we believe that investors would do well buying a stock like Green Thumb (at only 5.5x our below FactSet consensus CY24 EBITDA estimates) if they can take a long-term view (even though the main sector catalyst in the next 18-24 months will likely have to come from DC, in our view)," he added.

For the first quarter of 2023, the company's management expects to see strong momentum in New Jersey, Virginia, Minnesota, Connecticut and Rhode Island.

Price Action

Green Thumb's shares traded 1.10% higher at $8.3 per share at the market close on Tuesday.

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