Green Thumb Industries GTBIF Stock is one of the marquee cannabis stocks. At some $6B, they are one of the largest with revenues in the hundreds of millions per quarter. While Green Thumb Industries continues to build up its footprint at a solid pace, certain margins are slightly behind. But, by no means is this a slight. Management will certainly get the company there. In fact, for those that are savvy to understand how margins work then, you may also be able to see increased potential in earnings from current revenue.
But, current revenue is going to continue to grow as Green Thumb continues to expand its footprint. And, if margins continually advance simultaneously, this becomes a powerful engine for profit growth. With that, Green Thumb Industries GTBIF stock will continue to advance.
I will speak about margins in the various sections.
Green Thumb Industries Stock Comparison
Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:
- #4 Market Cap: $5.9B
- #39 Revenue Growth Rate: 14.1%
- #23 Gross Margins: 55.4%
- #13 Operating Efficiencies: 31.1%
- #9 EBITDA/Revenue: 29.3%
- #19 Cash/Debt Ratio: 63%
- #5 Total Assets: $1.22B
Green Thumb is a top-performing cannabis stock. These metrics are solid and will continue to be that way. But, some metrics, with a company the size of Green Thumb, you are simply not going to see big gains. Revenue growth rate is a perfect example. We do not see big gains organically from companies the size of Green Thumb. Smallish companies that recently received new distribution will see increased revenues that may be outsized versus current revenues and, that is where revenue growth rate stands out.
But, in total, with all of the revenue we saw in Q2, there was an increase of 7.5% QoQ. Green Thumb was double that.
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Green Thumb Industries GTBIF Stock Financial Data
Here is a breakdown of the various financial metrics for each portion of Green Thumb in the revenue statement and balance sheet.
Revenue
Here is a solid metric for Green Thumb: Revenue growth, as I mentioned just above, was 14.1% for the quarter. This is double the average for all cannabis stocks. And, this is on revenue that was from of a basis that is far greater than most other cannabis companies:
Green Thumb is well on its way to printing some of the highest revenues per annum in the industry. And, as they continue to grow organically, the assets they have will add continually.
Gross Margins
At this stage for Green Thumb, gross margins may be softer than what you might expect, but, again, this is temporary as more and more of the foundation is currently built will add to the bottom line:
Vertical cannabis companies have all three levels of cannabis production:
- Grow facilities;
- Processing facilities; and,
- Dispensaries.
What is important to understand is that a company may have a grow facility but, they may also only be using a small percentage of the facility. Production capacity may be, perhaps, 100K kg. per year, but, maybe the company is only using 50% of this. Still, the costs of 100% of the facility are being carried by the company. And, this affects the gross margins as the costs for these facilities represent a larger portion of total revenue.
There are other areas of gross margins that are important to understand, such as labor costs. This, also is reflected in cost of goods, the metric that is used to determine gross margins. Labor costs are usually easier to determine ahead of time and, therefore, on a percentage basis, labor costs remain about constant.
As a company grows its revenues continuously, there will be more and more usage of facilities improves on a relative basis, you will continue to see this metric move higher and higher.
Operating Efficiencies
As it turns out, operating efficiencies are a real bright spot for Green Thumb Industries as they lead the charge in containing costs:
Total Operating costs contain three main things that are important to keep track of: Sales, General, & Administrative. Basically, this is the corporate portion of the business.
We take total operating costs and divide that over total revenue and, this gives us an idea of how efficient revenue is generated from this portion of the business. Keeping costs contained with management salaries and other general costs is just as important as containing costs from production.
Green Thumb Industries is one of the most efficient in this category. Plus, the best part of this is that it is pure mathematics: As revenues climb, all else equal, if total operating costs remain flat, operating efficiencies continually improve.
Note: Because this is a percentage and represents Costs/Revenue, you want the lowest. The best in the industry are generally between 30% – 35%.
EBITDA Profits
This is the portion of the company’s metrics that shows how much they keep relative to revenue from the core of the business. EBITDA profits are gross profits and operating profits (less Depreciation & Amortization factored in at the operating cost level). This represents the core of the business.
The S&P 500 prints roughly 22.5% in EBITDA profits relative to revenues. With Green Thumb printing some 29%, that is nearly 50% more than the average of the S&P 500; that is an excellent place to be.
Keeping more of what you earn relative to revenue in the core of the business is key to profitability.
Net Earnings
For several quarters, Green Thumb has printed positive net earnings:
There are several cannabis companies that are net earnings positive. The bigger ones are the ones that will distance themselves from the underperforming cannabis companies.
If you are trying to decide between which cannabis stocks to buy, looking at both EBITDA profitability & net earnings go hand-in-hand. This is also how we determine stock valuation.
But, being positive here, to me, means that Green Thumb simply has more capabilities with M&A activity and growing their business. They simply are unencumbered.
Cash On Hand
Green Thumb has sufficient cash on hand and with positive net earnings will be adding to its coffers. However, due to some acquisition costs and other non-core business related matters, there was a slight decline in cash-on-hand:
I do not see the latest small drop as anything worrisome for a potential investment. Green Thumb is net earnings positive with continually increasing revenues.
Total Equity
Green Thumb Industries has both one of the largest market capitalizations as they do total assets:
Total equity is Total Assets less Total Liabilities. This gives us a solid idea of what is happening with the value of the business. Keeping close tabs on continually growing total equity will show that the engine of growth for revenue, and by extension, profits, will continue to move higher and higher.
Is Green Thumb GTBIF Stock a Good Investment?
Green Thumb has not made it into my Top Picks, and that is not because it is a bad company. This is a company that we will be hearing about for the next several decades. And, they are growing their foundation with acquisitions and CapEx increases. My thinking with Green Thumb is that the eventuality is one of the smallish companies in my Top Picks will likely get acquired by Green Thumb, or some other top-tier cannabis company.
But, Green Thumb is still undervalued relative to earnings and in comparison to the S&P 500.
What should GTBIF stock be worth?
When one looks at net earnings over the past four quarters, and factor in interest rates, the forward earnings multiple has GTBIF stock trading very low. If we turn back the clock four quarters ago, GTBIF, with a 40x future earnings multiple, should have been trading at a level of $40.00. We get this model from the valuation model that is currently being used by the S&P 500.
But, Green Thumb is growing faster than the S&P 500 and, simultaneously, has better metrics (such as gross margins). I typically use about 100x future earnings multiples for cannabis companies growing at the pace that Green Thumb is currently growing, and the metrics they are garnering with that revenue growth rate.
Given that, given the share count and the future potential of revenue growth and net earnings, and a 100x future earnings multiple, I am targeting $60.00 for GTBIF.
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