Green Thumb - Bull/Bear Scenario Analysis & Investment Thesis
- Adastra
- May 5, 2022
- 9 min read
Updated: Jan 30, 2024
This page presents the Green Thumb investment thesis with bull and bear scenario analysis of future revenue, market cap and share price. The page uses the format and thoughts presented in the Cannabis Portfolio page, with following sections:
Bull and bear scenario analysis using 5% quarter over quarter (QoQ) revenue growth and 10% annual share dilution
Overview and investment thesis
The following is the official description on the website of Green Thumb Industries:
Green Thumb Industries Inc. (“Green Thumb”), a national cannabis consumer packaged goods company and retailer, promotes well-being through the power of cannabis while giving back to the communities in which it serves. Green Thumb manufactures and distributes a portfolio of branded cannabis products including &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles and RYTHM. The company also owns and operates rapidly growing national retail cannabis stores called RISE. Headquartered in Chicago, Illinois, Green Thumb has 18 manufacturing facilities, 86 open retail locations and operations across 15 U.S. markets. Established in 2014, Green Thumb employs approximately 4,400 people and serves millions of patients and customers each year.
An important step as you DYODD in any company is to review the company’s Investor Presentation and financial results. For Green Thumb, these are available in their Events & Presentations page and their Financial Reports page.
I would highly recommend downloading the latest Investor Presentation and studying it. There is a lot of information but it will give you an overview of their strategy, brands, performance and investment thesis. I will not repeat the content, but will mention some key points and insights.
Green Thumb has been categorized in my fruits analogy as an aprium, because it is vertically integrated with retail dispensaries, as well as cannabis cultivation and processing facilities. It is currently a gladiator in the dog-eat-dog OTC exchange (Colosseum).
The company operates in 15 states in the US. It has 80+ dispensaries located across the US, 18 manufacturing sites and a strong distribution network. They have several branded products which they distribute through their branded retail dispensaries.
Vertical integration through retail dispensaries, manufacturing and distribution, is the source of Green Thumb's competitive advantage that few can compete with. The company is one of the highest ranked companies in terms of Revenue Growth Analysis, having delivered an average quarterly revenue growth of 10% for the decade that started in Q1 2020. During this decade the company has also delivered positive AEBITDA in every quarter. It was hence awarded the full 20 points for the AEBITDA category in the Best Cannabis Stocks Analysis.
Green Thumb is also the largest holding of the largest Cannabis ETF, the AdvisorShares Pure US Cannabis ETF (Ticker MSOS). It is also owned by more of the largest Cannabis ETFs. This will be beneficial to the share price when the cannabis sector gets back in favor and funds flow into cannabis stocks and ETFs (i.e. sector rotation).
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Bull and bear scenario analysis using 5% quarter over quarter (QoQ) revenue growth and 10% annual share dilution
The Bull case scenarios for Green Thumb are built on the assumption that quarter over quarter (QoQ) revenue growth will be 5% and annual dilution of shares will be 10%. The table below shows the quarterly revenues for the decade starting Q1 2020, and future revenues forecasted with 5% sequential revenue growth.
All tables on this page will be updated frequently. Review the past performance in revenue growth, the average for past quarters and the Decade to Date (DTD) % Growth in revenue. These were incorporated in the Best Cannabis Stocks Analysis. The table with comparisons to other analyzed cannabis stocks is presented in the Revenue Growth Analysis page. The table shows an impressive 10% average quarterly growth in revenue and a DTD growth in excess of 200%.
This now leads to what I call the Adastra charts for the Bull and Bear scenarios. The Bull Market Scenarios are presented in the table below.
All the scenario analyses presented here are built on the thesis that the rising tide of cannabis will be not one but two waves – the revenue growth wave and the bull market valuation wave. These tables predict the potential market cap and share price for the combined effect of these two waves, which can magnify the potential gains in share price appreciation.
This Bull market scenario analysis factors in 5% quarter over quarter (QoQ) revenue growth and 10% annual share dilution. Based on previous performance and the execution of the strategy demonstrated, I’d assess that there is a good probability that the revenue growth is achievable.
Nobody can predict when the next bull market will happen. But the numbers are modelled out to 2025, and if we see bull market valuations in these years, the market cap and price targets will be driven by the PS valuations given by the market. The numbers show that if we see any of the Bull Market PS valuations (Moon 10 PS, Mars 15 PS, Stars 20 PS), impressive gains can be had.
Will this company survive (with limited share dilution) till the next cannabis bull market?
With the modelled scenario (5% quarterly growth at 10% annual share dilution) achievable, there is a good probability that Green Thumb will survive till the next bull market. The probability of survival increases when we see the numbers in the AEBITDA Analysis. The numbers show that in spite of the phenomenal growth achieved, the company has reported positive AEBITDA in 100% of the quarters this decade. It is also one of the few cannabis companies that is Free Cash Flow positive. This is a well run company that combines revenue growth with cost optimization.
In the Cannabis Portfolio page I mention macro factors to consider like inflation, and consumers switching to cheaper substitutes and white label brands. Many companies might see sales decrease with inflation impacting consumer behavior. Green Thumb’s vertically integrated business model, with retail dispensaries, distribution, cultivation and processing, and owned brands, sets it up for success during challenging market conditions. The ecosystem is backed by economies of scale. The competition, mostly smaller businesses, lack these strengths and many are likely going to fail.
In the INVESTING category’s Cannabis Investing 1: Investment Opportunity of the Century? article, I estimate that the US cannabis market will grow from current US$30 billion to US$50 billion or more in 2025. Given the growth prospects for the cannabis market, the revenues forecasted in the tables above can be achieved if Green Thumb continues to grow with only half of the Quarter over Quarter revenue growth they have delivered in the decade starting Q1 2020. The revenue projections seem conservative and achievable through a combination of organic growth and growth through acquisitions. Should there be a bull market in the future years, with bull market valuations, the market price and share prices projected are achievable.
While the long term prospects for the cannabis sector are bright, in the short term there is a risk that the sector will remain out of favor and that valuations can remain low or even deteriorate further. It is important to model out Bear market scenarios based on Bear Market PS valuations (Koala Bear 2 PS, Panda Bear 1 PS, Polar Bear 0.5 PS). These Bear Market Scenarios are presented in the table below.
Green Thumb’s ridiculously low PS Ratio given strong revenue growth and AEBITDA results indicate that there may be limited downside potential to the share price. The only justification for lower PS valuation would be a risk of bankruptcy. I never assign 100% probability to any scenario in the cannabis sector. But based on all that I know about the company, I would assess the bankruptcy risk as low, especially given that it is Free Cash Flow positive.
Nevertheless, the Bear Market scenarios are worth reviewing to project market cap and share price for lower PS valuations.
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This brings us to the question:
Will this company thrive when legislation allows uplisting, institutional ownership and Nasdaq/NYSE listed companies to sell THC products in the US?
If legislation is passed that allows OTC listed US Cannabis companies to uplist to Nasdaq/NYSE and institutional investors to invest in the sector, companies like Green Thumb will benefit tremendously. In the INVESTING category’s Cannabis Investing 5: When Moon, Mars and Stars? article, I elaborate on the potential impacts of institutional investors finally getting to invest in fundamentally strong gladiators like Green Thumb, who are trading at ridiculously low valuations on the dog-eat-dog OTC exchange (Colosseum). The real and sustainable gains in market cap and share price might only be achieved when the institutions invest their funds in the sector and bring in sector rotation. This can trigger a bull market and with it the bull market valuations shown in the table above.
Additional Thoughts
In this section I will share some additional thoughts of mine, designed to provoke further thought and due diligence in readers.
One of the key differentiating factors for Green Thumb is their Omni-Channel Innovation. Like High Tide, Green Thumb has more than 1 million Rise Reward members in their Loyalty program. They leverage their owned consumer analytics to drive basket size and strengthen consumer relationships. They elevate the retail experience to serve customer needs with their 360 Storefront. Their digital storefront, in-house delivery, and brick-and-mortar, are aligned to create a frictionless consumer experience at every touchpoint.
Overall the fundamentals for Green Thumb are impressive. It happens to be one of my 3 top pick stocks, along with High Tide and Curaleaf. The sequential quarterly revenue growth rate is phenomenal and they are able to deliver this with consistent AEBITDA positive quarters. In addition, being a top holding of the MSOS and other ETFs will be beneficial when funds flow back into the cannabis sector.
While the fundamentals are strong, Green Thumb is missing the hype and volumes of the Nasdaq/NYSE listed stocks. This is because it is stuck on the OTC exchange and misses out on institutional participation. During the cannabis bear market this may be the main reason the stock remains undervalued and trades at low valuations. While this would indicate a good opportunity for value investors, it is impossible to predict how long the company will remain a gladiator in the dog-eat-dog OTC exchange (Colosseum). Investors need to consider this factor and set expectations accordingly. Without the Nasdaq/NYSE listing and institutional participation, volumes of shares traded might remain low. The low volume of stocks traded makes it easy for market makers and short sellers to manipulate the share price. With a limited number of shares, the stock is often suppressed, triggering panic and stop losses from retail investors. These shares are accumulated via disproportionately high dark pool volumes, which can be seen on sites like Stockwatch.com. And with the investor base primarily retail investors, investor sentiment can be manipulated via well orchestrated social media posts designed to cause Fear, Uncertainty and Doubt (FUD).
Information sources and charts
As mentioned, the Investor Presentation and Financial results are a must read for any current or new investor.
You can also stay informed by following the company and senior management on Twitter and joining the conversation with fellow investors on Stocktwits and other platforms. Green Thumb is active on X/Twitter @GTIGrows. The Founder and CEO, Ben Kovler is also active on Twitter and can be followed @Bkov9.
Green Thumb has an active investor community on the Stocktwits Green Thumb page.
But the ultimate form of research in my opinion is boots on the ground research. I have not had the opportunity to visit a Green Thumb dispensary. But will drop by at a dispensary if there is one close by while I'm visiting on a vacation. For those interested in doing their own boots on the ground research, Green Thumb has dispensaries located in California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Virginia.
This page, along with the analysis and tables included will be updated on a regular basis. If you are a Green Thumb shareholder who wants to stay stay informed with the latest bull/bear scenario analysis, feel free to add this page to your browser favorites.
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Disclosure: I (username Adastra) am an investor not a trader. I am bullish on the Cannabis sector as a long-term investment (2026 and beyond), provided stocks/ETFs are carefully picked based on data-driven due diligence. Of the 16 stocks covered in the Best Cannabis Stocks analysis, I have invested only in my top 3 picks: High Tide, Green Thumb and Curaleaf. But my analysis indicates (without any guarantees) that there is a potential for impressive gains in investing in the stocks best ranked in the analysis, including WM Technology, and Trulieve, which have a dedicated page with detailed analysis in the STOCKS category. I reserve the right to buy or sell at any time any of the stocks mentioned in this blog. I do not short stocks and never will short any stock in a company that makes the world a better place. I do not have insider knowledge of any company covered in this blog. All data used for analysis is from public sources. I have received (as of last update date of this page) ZERO funding for this blog from any of the companies featured in this blog.
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