As earnings season approaches, Cantor Fitzgerald analyst Pablo Zuanic discussed his expectations. One of his top stock picks, Green Thumb Industries Inc. (CSE:GTII) (OTCQX:GTBIF), is poised to report its financial highlights for the fourth quarter of fiscal 2021 - first among the cannabis MSO group - on Tuesday, March 1.
"While macro trends point to a down qtr (for the legal rec/med markets) and management guided for flat sales growth, we calculate recent deals could add $6Mn to sales in 4Q21E (RI, MA), and store openings (full qtr of 3Q openings, and three added during 4Q) should also help the top-line," Zuanic said in his latest note.
The Analyst
Zuanic retained an Overweight rating while lowering his 12-month price target to $41 from $54 due to sectoral derating.
The Thesis
The analyst expects GTI to post stable EBITDA margins and roughly $242 million in sales for the fourth quarter, versus the FactSet consensus of $238 million.
He said that management guided for minimal quarter-over-quarter growth, which "makes sense" from a macro perspective, taking into account store openings and recent deals.
Zuanic also took a closer look at three recent deals the company closed in the second half of 2021 in license restrictive states, including Virginia, Rhode Island and Minnesota, "in which it could end up paying $500Mn in total, factoring in earnouts."
While earlier buyers "may have gotten better value, these investments make sense...on the assumptions that the market remains license-restricted, med licensees are grandfathered into the rec program, and new rec licensees take 1-2 years to get up and running," the analyst explained.
"These deals are consistent with the company strategy of focusing on license-restricted states, and all represented meaningful long-term upside."
The Three Deals
In Minnesota, GTI purchased LeafLine Industries – one of two licenses in the state - for approximately $150 million. The deal included a cultivation facility, five open and operating retail locations in Eagan, Hibbing, St. Cloud, St. Paul, and Willmar and the opportunity to open up to three additional retail locations in the state.
In April, the company closed the deal to take over Mobley Pain Management and Wellness Center (DE), LLC and Canwell Processing (Rhode Island), LLC, both with contractual interests in Summit Medical Compassion Center, Inc. The acquisition of one of only three vertically integrated licensees in Rhode Island included a Warwick-based facility and dispensary while providing "immediate scale within a limited license market and sits squarely in our enter, open, scale strategy to expand access to well-being through cannabis," Ben Kovler, the company's founder and CEO said back then.
In July, GTI debuted in Virginia via the acquisition of Dharma Pharmaceuticals LLC, one of only five licenses in the state's medical cannabis market. The company obtained an existing production facility and retail dispensary located in Abingdon and an opportunity to launch up to five additional retail locations in the Commonwealth.
Price Action
GTI's shares traded 2.54% lower at $19.15 at the time of writing on Friday.
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