A leading cannabis stock is anticipated to see substantial growth over the coming years.
The cannabis sector has encountered numerous challenges recently, with the majority of marijuana stocks losing more than half their value over the past five years. This decline is largely due to slow progress in U.S. federal legalization efforts, heavy taxation, and competition from the black market. Many companies have also experienced supply and demand issues due to managerial errors.
Nonetheless, the long-term potential of the cannabis market remains significant. Industry analysts forecast that global cannabis sales will grow at a compound annual rate of 34% from 2023 to 2030, potentially reaching $444 billion by the end of the decade. This growth presents an opportunity for companies that are well-positioned in the market.
In the U.S., one prominent multi-state operator (MSO), Green Thumb Industries, stands out as a potential long-term leader in the cannabis industry.
### Green Thumb: A Cannabis Leader with Extensive Reach
Green Thumb Industries, listed under the ticker symbol GTBIF, is a major presence in the U.S. cannabis market, operating across 14 states with 20 manufacturing facilities and 98 retail locations. Its product portfolio includes well-known cannabis brands such as Beboe, Dogwalkers, and RYTHM.
Wall Street analysts consider the stock to be undervalued by 57% from its current levels, a reflection of its expanding operations, diverse product offerings, and broad customer base. The stock has demonstrated resilience in a challenging market, providing a 14.3% positive return over the past five years.
While this performance is less than the 99% gain of the S&P 500 during the same period, it underscores Green Thumb’s relative strength within the beleaguered cannabis industry.
### Financial Strength in a Difficult Market
Green Thumb Industries’ strong financial performance underpins its relative outperformance. In the second quarter of 2024, the company reported revenue of $280 million, up 11% year-over-year. More significantly, it achieved a GAAP net income of $21 million and an adjusted EBITDA of $94 million.
The company’s capacity to generate cash flow is a notable advantage. For the first half of 2024, Green Thumb reported $104 million in cash flow from operations.
This financial robustness has enabled the company to maintain a healthy balance sheet, with $196 million in cash at the end of Q2 2024, although it concluded the most recent quarter with $309.7 million in outstanding debt.
### Management Confidence and Growth Prospects
Management at Green Thumb Industries has expressed confidence in the company’s future through share buybacks. The board recently approved a $50 million share-repurchase program, allowing for the repurchase of up to 10,573,860 shares over the next year. This follows a prior initiative in which the company bought back 6.5 million shares for $73.3 million.
Analysts project 7% revenue growth for Green Thumb in 2025. Although modest, this growth rate reflects the company’s substantial revenue base and the complex regulatory landscape.
### Strategic Positioning for Future Expansion
With a market capitalization of approximately $2.42 billion, Green Thumb is the second-largest cannabis company globally. Its extensive footprint positions it to benefit from increasing demand in the U.S. legal market. The company’s strategy includes a focus on states with large populations and limited licensing, such as Illinois, Massachusetts, New York, Florida, and Ohio, providing it with a strategic edge.
Green Thumb’s growth strategy emphasizes states with strong medical cannabis markets and potential for future recreational legalization. This approach aligns well with the expected high-teens average annual growth rate for the U.S. recreational market over the next decade. Although Green Thumb currently lacks international operations due to federal restrictions, this could change with future U.S. law reforms.
### Potential Risks and Challenges
Investors should consider potential challenges such as the risk of higher taxes on cannabis products and competition from the black market. Additionally, Green Thumb’s current inability to cultivate internationally may limit its competitiveness in the global medical cannabis market if federal laws are revised.
Despite these hurdles, Green Thumb’s robust financial performance, strategic market position, and growth potential make it an attractive option for investors seeking exposure to the cannabis industry. As the U.S. market continues to evolve and mature, Green Thumb is well-positioned to capitalize on forthcoming opportunities.
