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1 Stock That Could Become a Cannabis Powerhouse

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With growing revenue and profits, Green Thumb Industries is set for some aggressive expansion this year.

There is a vast disconnect between the performance of cannabis companies and their stock prices. Even though most pot companies are doing exceptionally well, their stock prices are not reflecting the same. It is mostly driven by the market sentiment related to federal legalization. Lack of positive movement toward federal reforms last year led to a market sell-off of cannabis stocks. But keep that aside for a moment, and you will see companies with strong financials and high growth prospects that can bring in some bountiful returns over the long haul.

One such company is Illinois-based Green Thumb Industries (GTBIF -1.01%) which reported its fourth-quarter 2021 results on March 1. It was a strong end to the year. Let's dig into the quarterly results and analyze why this could be one of the best cannabis stocks to buy now.

Image source: Getty Images.

Green Thumb had an excellent end to 2021

Things have been looking very promising for this multi-state cannabis operator. It sells medical and recreational cannabis under its brand names like Rythm, Dogwalkers, Incredibles, Beboe, and many more. 

Increased traffic from 73 open and operating retail stores in 15 states resulted in another robust quarter and year-end for this cannabis grower. Total revenue in the quarter grew from $177 million to $243 million in Q4. For the full year, revenue ramped up to $894 million, up 60.5% from 2020 levels.

The company also gave credit to 10 new stores and 12 acquired stores in the quarter for the total revenue growth. According to management, its consumer packaged and retail business in Illinois and Pennsylvania strengthened in the year contributing to the overall performance. Its home state Illinois is still churning sales from adult-use cannabis ever since it legalized it in 2020. Total legal recreational sales in the state crossed $1 billion last year.

The fourth quarter marked Green Thumb's sixth consecutive quarter of positive net income under generally accepted accounting principles (GAAP), which came in at $22.8 million, a modest 1.5% year-over-year increase. However, net income for the full year saw a whopping year-over-year increase of 406% to $75.4 million.

2022 is looking exciting for the company

Toward the end of 2021, Green Thumb acquired Minnesota-based LeafLine Industries, which gave the company access to one cultivation facility and five open retail stores in the state. It also acquired the right to open another three stores in Minnesota. 

This year, so far, the company has opened two more stores in Virginia, bringing its total to 75 stores nationwide.

From 40 stores at the beginning of 2020 to 75 now, Green Thumb has come a long way. It opened a total of 10 stores and acquired 12 stores in 2021. With quite an impressive number of additional licenses, it will be interesting to see how many stores the company opens this year.

Retail sales could ramp up in 2022 for the states that legalized marijuana last year. Mississippi was the first state to join the list of states in 2022 that legalized medicinal marijuana. Experts predict many more states could follow suit.

This means more revenue for Green Thumb. If Green Thumb decides to use its additional licenses this year, it could easily give a tough fight to its peers like Trulieve Cannabis, which boasts 161 dispensaries nationwide. There are high chances the company could generate much more than $1 billion in revenue this year. Besides focusing on growing revenue and profits, the company has also worked on keeping its balance sheet stable. It ended the year with cash and cash equivalents of $230.4 million and outstanding total debt of $239.9 million. 

Q4 also marked Green Thumb's eighth consecutive quarter of positive cash flow from operations. Why is it important? Consistent positive free cash flow from operations allows a company to settle its debts and utilize the money for the future. Considering how challenging the cannabis market is getting, it is important to have free cash flow on hand for future expansion.

Strong buy signal

Green Thumb's strong end to the year and its high growth prospects give a strong buy signal. Falling share prices of marijuana stocks over the last few months shouldn't be a huge deterrent for investors with a long-term horizon. Like any other evolving sector, things can change really fast should the market truly recognize the industry's long-term potential.  

The good news is the stock is quite cheap now, trading at a price-to-sales ratio of 4. It is even trading below 50% its 52-week high, making it the right time to buy at the dip. Even Wall Street has high hopes from this pot stock -- which is why analysts see an upside of 104% for the next 12 months.

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