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Green Thumb IPO: why has this cannabis stock soared by over 300% in the last year?


We’ve been writing about cannabis stocks for some time now, covering the likes of Village Farms (NDQ:VFF) and Christina Lake Cannabis (CSE:CLC). However, there is one stock that has been flying under our radar. Until now that is.

This week, Green Thumb Industries (OTC:GBTIF) announced the sale of up to 10 million of its subordinate voting shares and immediately accepted an offer from a single institutional investor to purchase approximately 3.1 million shares at $32.03 per share.

Shares jumped around 10% at the news, and by end of play on Wednesday 10 February, Green Thumb closed at $38.45 per share. But even before the IPO, in the last year the share price increased 300% from $8.31 to just over $33.

The company intends to raise $100 million, using the proceeds to “increase capitalisation and financial flexibility”, according to IPO filings. In our book this means it has some serious expansion plans.

Green Thumb’s growth strategy is paying off

Founded in 2014 by Ben Kovler, Green Thumb Industries manufactures and distributes a range of branded cannabis products. Its portfolio includes Rythm, Dogwalkers, The Feel Collection, and Beboe, among others. The company also owns and operates a rapidly growing national chain of retail cannabis stores called Rise.

In 2019 the firm adopted an ‘Enter, Open, Scale’ strategy and, nearly two years on, it certainly looks to be working. Fifteen new stores were opened in 2020 and in January 2021 it opened its 52nd store. Green Thumb products are available in some of the key cannabis states: California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Ohio and Pennsylvania, so it is in prime position for further growth.

Strong on sales

For the nine months to September 2020, total revenue was $379 million; well over double that from the same period in 2019. Total revenue for Q3 2020 alone was $157.1 million, up 131.1% from $68 million for the third quarter 2019.

The firm also reported EBITDA for Q3 2020 of $48.7 million or 31% of revenue. This compares to $9.1 million or 13.3% of revenue for the third quarter 2019.

Net income for Q3 2020 was $9.6 million or $0.04 per basic and diluted share, as compared to a net loss of $14.6 million for the third quarter 2019.

Kovler attributed the growth in revenue to both the consumer packaged goods and retail businesses, highlighting Illinois in particular from when the adult use program came into effect on 1 January 2020.

Having said that, one other aspect of Green Thumb that is worth noting is the product mix within the retail business, because over half of its revenue comes from higher margin products. According to the 2019 annual report – and assuming that this mix is similar for 2020 – within the retail business which accounts for 56% of the company’s revenue, flower sales accounted for 41% of revenue. Meanwhile, derivatives such as vapes, edibles and health and beauty accounted for 59% of revenue. The momentum is building for the cannabis sector and for the firm too. While there are no specific expansion plans around this latest of injection of capital, we are expecting to hear a lot more from Green Thumb.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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