Why I Don't Care for the Stock of Green Thumb Industries at $6

As I write this, an important question comes to my mind: Why here and not at Seeking Alpha? I have discussed here several times that this blog is about more than cannabis stocks, and that I do my cannabis writing at Seeking Alpha or New Cannabis Ventures. There are lots of reasons to not write about a stock here, including low readership and no payments. At Seeking Alpha, I get paid a variable amount for each piece, though that is not really my driver. I write on Seeking Alpha to build my reputation and to drive subscription growth at 420 Investor.

I last wrote about Green Thumb Industries (GTBIF) at Seeking Alpha in April, downgrading it when it was at $5.60 from Neutral to Sell. The stock is now at $6.03, though the cannabis sector has increased by more since then. The New Cannabis Ventures Global Cannabis Stock Index is about 5.39 right now, and it closed on 4/17 at 4.95, so it is up 8.9% compared to the rise in GTBIF of 7.7%. GTBIF did report its Q1 in May, and it will be reporting its Q2 on 8/6. I will write at Seeking Alpha about it after their report, but I don't have much to say now that I didn't say in that last article, where I downgraded it along with MSOS and two other MSO stocks.

So, while it costs me a loss of money publishing it here, I am going to do so. I understand some good stuff about the company, which I will share first, but there are some things that bother me too.

What Is Good About Green Thumb Industries

I started covering GTBIF closely when it went public, and there is a lot to like about it. It has the best balance sheet of any large MSO, and it is very large. In Q1, it had revenue of $294.3 million, placing it behind Trulieve ($297.8 million) and Curaleaf ($310.0 million). It had the highest operating profit of the three at $39.7 million. It reported EPS of $0.04. While this sounds low, it is not low for a cannabis company, as the American cannabis companies pay 280E taxation. The company reported adjusted EBITDA of $85 million. You can read the report for Q1 at New Cannabis Ventures

The balance sheet stands out. Unlike its large peers, the total debt is $238 million. There is cash of $210 million, so net debt works out to just $28 million. Tiny! Perhaps more importantly, it stands out compared to its peers for its tangible book value, which is $741.3 million. The rest of the large MSOs have negative tangible book value (and more debt).

I think the company is well diversified too, operating in the Eastern markets but also in California to a limited degree and in Nevada. They are maxed out in most of the states in which they operate that have limits on the number of dispensaries or the size of the cultivation, though. The good news has been that they invest in acquisitions to grow, like in Minnesota.

GTBIF is currently trading at just 4.3X its projected adjusted EBITDA for 2026, which is quite low. I explain below why it is not low enough relative to peers, but it is low. Also, the stock trades at just 2.0X tangible book value.

Finally, they don't surprise much, which, especially in a bear market, is a good thing!

What Is Challenging For GTBIF

The biggest challenge for GTBIF is 280E taxation. It's a bigger challenge for its peers, with their worse balance sheets, but it is a problem for GTBIF too. Of course, the adjusted EBITDA misses this as the T in EBITDA is taxes, and these earnings are before taxes and other things.

To me, a big challenge for the stock is that the MSOS ETF owns so much. If it gets hit with a redemption again, it will be forced to sell some of the 19.63 million shares of GTBIF it controls. It is currently 28% of the ETF. Big!

Some may criticize my not including "strong management" in the positives. I do not think that management there is weak, especially compared to peers in the industry, but I don't like a few things. First, nothing against Ben Kovler, who I like, but he has primarily a financial background. So do I, and I don't dislike him or those that do come from Wall Street, but I do wonder about the group's ability to run companies. He has done a pretty good job to his credit. Ben, a Jim Beam heir, has big visions for the company and the industry and compares well to most of his peers. I don't like what he has done with the CFO position, which was given to an employee with no external experience running a company's finances. I don't know the CFO, but Ben seems to keep his management team constrained. One executive there that I really like is Anthony Georgiadis, who serves as President. I have met him and like his background. Yes, he was an investment banker too, but if you check out his LinkedIn profile, you will see that he served as COO of a company for a decade too. So, it's perhaps clear why I didn't put management in the paragraph above, but why is it a challenge? Very simply, management controls the company with its voting rights. Bad news in my view.

Another challenge is slow growth. Some of this is the industry's challenges, including pressure on the consumer, the strength of the illicit market, and competition. GTBIF is not one of the biggest players in Florida, but it has been expanding. That is a tough market! The growth at GTBIF has been terrible, and the analysts are not expecting strong growth. Some might think that the company should or will do M&A, but many states limit the size of the operators in that state.

One way that the MSOs can grow is to embrace hemp, though that could become challenging as well. I said this a while ago and don't take credit for what has happened, but GTBIF and its two large peers are involved with THC from hemp. I don't think it is a big deal for any of them, but I really do not like what GTI has done with Agrify (AGFY), where GTBIF has a big investment and where Ben Kovler is the Chairman and the acting CEO.

I said above that the GTBIF valuation is low, and it is. It is high, though, relative to some peers like Verano (VRNOF). Of course, Verano has a worse balance sheet, but it trades at an enterprise value to projected adjusted EBITDA in 2026 of just 2.2X. The only other MSO that I like (kind of sort of) is Planet 13. It is much smaller, but it has a better balance sheet and trades at just 1.1X tangible book value. Outside of MSOs, one can find good balance sheets that trade below tangible book value and on higher exchanges too.

The last point I want to make is that the chart could be challenging for GTBIF. It is financially stronger than all of its peers, one of which went belly-up as of last night, but it is the only large MSO not to trade to a new post-2020 low.

With that said, I do kind of like the setup currently on the short-term chart, with a potential double-bottom at the $4.75 area.

Conclusion

So, hopefully I have explained my views on GTBIF. Yes, it is cheap. Yes, it has a good balance sheet. Still, I do not include it in my model portfolio at 420 Investor. You are welcome to own it, and I will not call you crazy! I don't own a lot of MSOs right now in that model portfolio. I prefer some ancillary names and some Canadian LPs (and some cash)!