Goodness Growth GDNSF stock, formerly Vireo Health VREOF stock, is growing and the metrics are starting to add up and this may be a solid cannabis investment. Still, there is some ways to go. Goodness Health is both a medical-use and adult-use marijuana stock. The original focus, and still the primary focus, is medical-use cannabis, but offerings of adult-use cannabis are starting to show up in dispensaries. They are in five states and will continue to expand from there.
When I first looked at Vireo VREOF back in November of last year they appeared on the cusp of profitability. They are edging closer and have since consolidated shares and increased revenues; they have also divested operations in Pennsylvania. Goodness Growth GDNSF stock also sold off its Pennsylvania assets to focus on more profitable core ventures. Despite the increased revenues, the pace of growth is slow when compared to other marijuana stocks simply because growth rates for medical cannabis tend to be lower slower than adult-use cannabis. I expect that to round out as offerings change and I do not dissuade someone from considering Goodness Growth a good cannabis investment.
Arizona is a big potential for Goodness Growth GDNSF stock since the state has flipped to recreational, adult-use cannabis. Sales numbers we are seeing out of Arizona are larger than expected and players in that state may actually do better than anticipated.
New York may be an interesting state moving forward that recently flipped to adult-use and where Goodness Growth already has dispensaries and grow facilities. Being one of the largest populous states in the Union, there is potential for significant growth there, as well. However, don’t expect to start seeing growth and revenue out of New York for about 12 months as a state that figured out how to be ultra-conservative in rolling out a liberating law did just that. Still, this could be a decent play. And, as Goodness Growth focuses on Arizona and other states the eventuality is that there will be a roll-out of cannabis products in New York that will amplify revenues down the road.
Is Goodness Growth GDNSF Stock one of the Best Marijuana Stocks to buy now?
I have a running list of the best marijuana stocks to buy now. There was a time when I thought Goodness Growth GDNSF stock could have made that list. But, the numbers have faltered somewhat. I had expected better margins and cost containment.
When I first looked at GDNSF stock (Then, VREOF) it was trading at roughly $1.00. The euphoria of the elections pushed the stock upwards along with just about every other cannabis stock pushed upwards:
That euphoria has been waning. I blame many factors but, I do not see this as a bad thing. You get the bigger cannabis stocks that were pushed upwards simply because these stocks were popular. The bigger MSOs and Canadian LPs bring in a lot of retail investors who have never been involved with cannabis investing and do not understand the intricacies; nor how to invest in general and just follow the crowds like sheep.
Unfortunately, these larger cannabis companies are not profitable and actually have some of the worst metrics out there despite garnering as much media attention as they do. Notwithstanding, there are some larger cannabis companies that I like a great deal. These smallish companies simply do not garner as much headline-grabbing (I know, I have cannabis companies reaching out to me all of the time looking for some exposure).
That being said after these bigger company’s stocks were pushed higher the reality of what individuals bought set in: Overvalued stocks. Cannabis stocks, en masse, have been selling off. The chart above is synonymous with all cannabis investing, GDNSF is no exception.
Where are the bigger buyers?
Don’t expect hedge funds to rush in to the arena to save the day. The S&P 500, at this time, is breaking new, all-time records almost every other hour. If these bigger hedge funds are sitting on stocks that are flying higher and higher, is there any incentive to look for an alternative investment? Nope.
Besides, even if these bigger hedge funds were looking at cannabis stocks they most certainly would not be looking at a company as small as Goodness Growth. This is not a slight on Goodness Growth GDNSF stock as much as it is a rule of mechanics. First, Goodness Growth GDNSF stock is all of $150M. If a hedge fund manager were sitting on $1B to invest they would likely be looking to park themselves into stocks that have market caps of at least $1B and they may limit themselves to ownership percentages.
These players simply do not have the time or inclination of what it takes to get into these smallish cannabis stocks. So, they don’t. Plus, these same investment funds may have already been burned by stocks that sell off; just look above at the price of this stock to see that although the broader market is making new, all-time highs every other hour, cannabis stocks are selling off.
That being said, Goodness Growth GDNSF stock has sold off from its peak of recent. This begs to question: What should GDSNF stock be trading at?
In order to figure that out we look towards the breakdown of Goodness Growth financial data.
Goodness Growth GDNSF STock Financial Data
What I focus on is the current position of any company. If Goodness Growth were to offer guidance I will use that in assessing what current metrics are in order to determine how that plays out with the stock.
Goodness Growth is expected to hit about $75M in revenue for the 2021 year. They finished up 2020 with $50M in revenue so, there is an expectation of some 50% increase YoY. The increases are due to organic growth in current sales from dispensaries and other methods of selling products as well as new dispensary openings.
Along with increases in revenues you are also likely to see improvements in margins and other metrics. Let’s look at some of these metrics.
Revenues moved higher significantly earlier. But, the divestment of Pennsylvania to Jushi Holdings JUSHF stock also meant losses in revenue growth & gains. Still, if Goodness Growth GDNSF Stock were to hit $75M in revenue that puts the company earning an additional $62M over the next three quarters. That being said, I would expect something along the lines of $17.5M, $20M, and $22.5M:
These are sizeable gains for the company so, there is solid growth ahead.
With that much of an increase, then my expectation is that there will be economies of scale and productivity gains along with cost savings that will trickle through to the bottom line. Those economies of scale and production gains will improve metrics. I like this in a company.
At the same time, although I say this I have also seen other companies not achieve these metric increases. I have heard a lot of companies say the same thing: It is really easy to grow cannabis. It is very difficult to grow excellent cannabis. Let’s look at margins.
Gross margins are a bit of a soft spot and there is room for improvement.
The very best companies out there are printing some 60% – 65% for gross margins. At 42%, with increases in revenues as high as they are I could expect that Goodness Growth may hit above the 50% level easily. This would be natural. And, all management at Goodness Growth would have to do is work continuously to narrowing the gap between its own metrics and those of the better performing cannabis companies.
As I mentioned, with more revenue and production there should be better margins. “Should”, is the optimal word.
To see Goodness Growth financial data; click here
Operating efficiencies are one of my favorite metrics to follow. Whereas gross margins are all of the costs associated with producing a product, operating costs have a metric associated with the costs of running a business. All of the costs of running a business are metered out to show how efficient management is producing revenue.
Whenever you hear Warren Buffet talk about evaluating management this is an excellent way of getting an idea of what that means. Without hiring a private investigator to run around following the CEO all day, should we want to know how efficient management is at running a business (And not freewheeling on the investor’s dime), just look at the total operating costs versus revenue.
That being said and looking where the metric is, two things: This is driven by total operating costs relative to revenues, and revenues are going to increase. The very best, most efficient top cannabis companies, come in around 30% – 35%. At 81%, Goodness Growth has a ways to go. This does not suggest that management is spending wild and free as much as it says that Goodness Growth is still formulating a foundation to work with. Keep in mind, revenues are going to go up. If operating costs remained exactly the same and the last quarter of this year printed $22.5M then operating efficiencies would be about half the above number. Building a business is a process, not an event.
To see Goodness Growth financial data; click here
EBITDA profit & Net Income
Goodness Growth is still in that stage where they are trying to get to EBITDA profitability. They may very well achieve that with this year’s revenue projections. I find that to be a very positive outlook.
We look towards EBITDA profitability in start-up companies because that tells us if the business model itself will ultimately become profitable. I can see Goodness Growth becoming profitable and achieving EBITDA break-even quickly.
After that, I’d like to see continued improvements in margins. It would seem that getting to EBITDA profitability would only happen with better margins. But, seeing that EBTIDA profits are within striking distance on what I see as less-than-awesome margins is very intriguing to me.
To see Goodness Growth financial data; click here
Is Goodness Growth GDNSF Stock A Good Buy?
If we are wondering if Goodness Growth GDNSF Stock a good buy all we need to do is look at the bigger picture. There are some metrics here that I really like. Goodness Growth may be putting together a powerful company for the future. They need to achieve better margins, however. Still, despite really excellent margins they have EBITDA profits within range. The increased revenues will go a long way. At the end of this year, Goodness Growth may be an excellent cannabis investment.
You have to ask yourself the question if you are willing to wait it out for Goodness Growth to achieve the margin metrics they need to be profitable with an eye towards the fact that even with poor numbers they are getting it done.
There’s something else that is interesting to me: Shares outstanding. Goodness Growth has only 73M shares outstanding; that is very low. I am going to have to list Goodness Growth as a cannabis stock to watch… definitely watch. With such a low share count, and with revenues moving as high as they are, Goodness Growth GDNSF stock may pack a punch.
On a cautionary note, however, the broader market may shift significantly. You are going to start hearing me saying that over and over again. This will likely pressure the cannabis stocks as the broader market takes a significant hit. Given the potential of Goodness Growth, that just means all of the value you can get from a cannabis investment like this will be at an even better price.
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