Green Thumb Industries (GTI) (CSE: GTII) (OTC: GTBIF) is a national cannabis consumer packaged goods company and retailer. GTI manufactures and distributes a portfolio of branded cannabis products including ower, concentrates, edibles, and topicals, as well as operates a multi-state chain of retail cannabis stores called Rise™ and Essence. Established in 2014, GTI has its headquarter in Chicago, Illinois, and operates seven manufacturing facilities and licenses for 50 retail locations across 12 U.S. markets including Nevada, New York, Connecticut, and California. GTI is unique in dedication to providing dignified access to safe and effective cannabis nationwide.
Operating, Investing, and Financing Activities
As Illinois joined the recreational market in the U.S. and started sales officially on January 1, 2020, GTI celebrated its hometown sales by announcing the successful launch of adult-use cannabis sales and opening of Rise Joliet in Illinois. On the first day of adult-use sales, GTI stores served thousands of customers who were looking forward to legal recreational cannabis for a long time. Long lines waiting outside stores and the celebratory atmosphere among customers are demonstrated at GTI stores across the state.
On the other hand, Rise Joliet, the 40th store opened by GTI is the first adult-use only store in the states. In addition to GTI’s retail cannabis stores Rise™ and Essence, Rise Joliet has served tens of thousands of customers since January 1. The Illinois Department of Financial and Professional Regulation (IDFPR) claimed that adult-use cannabis sales in Illinois from January 1 through January 12 accounted for 19.7 million U.S. dollars.
Moreover, on Jan 31, 2020, GTI announced Rise Quincy as its seventh store and the second adult-use only store to open in Illinois. Like Rise Joliet, Rise Quincy will undoubtedly help boom sales in GTI’s hometown.
GTI initiated a series of supply chain activities, including acquisitions for forward integration and backward integration to support its expansion of brand distribution and generate tremendous sales.
In August 2019, GTI closed on the acquisition of New York-based Fiorello Pharmaceuticals to acquire a highly coveted vertically integrated New York license. Fiorello Pharmaceuticals can provide one of only 10 vertically integrated licenses for cultivation and processing facility. Nonetheless, GTI’s acquisition of Fiorello Pharmaceuticals included four retail stores located in Manhattan, Rochester, Halfmoon, and Nassau County, which are highly trafficked areas in New York. As a result, GTI would secure its place in the promising medical marijuana market in New York.
In June 2019, GTI scaled brand distribution in Nevada and entered the California retail market by closing on the acquisition of Integral Associates. This acquisition included two award-winning cultivation facilities and 12 retail stores. Integral Associates has three high-traffic Essence retail stores across the Las Vegas area, eight retail licenses in Nevada, and West Hollywood retail license, which is one of only five with a consumption lounge providing delivery service. These retail licenses offer GTI tremendous growth and unexpectable opportunities in Nevada and California retail market. Moreover, Integral Associates’ two cultivation facilities are the 54,000 square foot Desert Grown Farms with an award-winning genetics library of 100+ strains, and the 41,000 square foot Cannabiotix NV which has been recognized by High Times Cannabis Cup as an award winner. Similarly, Integral Associates’ two cultivation and processing facilities support GTI to expand brand distribution and serve as tremendous assets to GTI’s organization.
Likewise, GTI entered the Connecticut market with the acquisition of Advanced Grow Labs LLC (AGL) in Jan 2019. AGL is one of four companies in Connecticut that have licenses to grow and process cannabis. Moreover, AGL harbors a 41,000 square foot facility in West Haven and holds a 46 percent ownership of a dispensary slated for Westport, CT. The transaction with AGL shows GTI’s firm execution in line with GTI’s strategic expansion plans to distribute brands at scale. Besides, the acquisition demonstrates attractive multiples and is accretive to shareholders that it helps create shareholder values.
On November 20, 2019, GTI reported third-quarter revenue of $68 million and adjusted operating EBITDA of $14.1 million. Revenue increases derived from organic growth across consumer products, retail businesses, and Integral Associates revenue. Gross margin (GM) keeps a steady pace in increasing, though GM in Q3 2019 was 51.2% as compared to 52.0% in the prior quarter. Adjusted EBITDA in Q3 2019 was $1.5 million, which accounted for 2.3% of revenue compared to -22.8% in the last period. The leading cause of improved adjusted EBITDA resulted from decreases in sales and marketing and general and administrative expenses (SG&A). GTI has kept disciplined execution in managing SG&A while generating profits from its marketing and management. Shown below, GTI managed to decrease SG&A from 90.2% in Q4 2018 to 43.7% in Q3 2019.
However, GTI has difficulties in bringing positive return-on-asset (ROA) and return-on-equity (ROE). Specifically, GTI’s ROA and ROE are -1.6% and -2.1% in Q3 2019, compared to -1.1% and -1.2% in the prior year, respectively. Although GTI’s ROA and ROE in Q3 2019 are not so satisfactory to its shareholders, operating, investing, and financing activities initiated throughout the year would help create additional shareholder values by bringing tremendous cash flow in Q4 2019.
Ulteriorly, GTI’s acquisitions not only help it secure retail markets in New York, Nevada, California, and Connecticut, expanding retail locations across 12 U.S. markets but also add substantial intangible assets and goodwill which are more valuable to GTI’s organization. Most importantly, the recreational sales in Illinois starting on Jan 1, 2020, would inevitably boost GTI’s Q1 2020 revenue as well as assist retail business because of home advantages.
- Illinois Gives Cannabis Licenses to 5 Dispensaries Owned by the Same Company
- Six More Medical Shops Granted Licensed to Sell Recreational Cannabis
Source: Green Thumb Industries