Green Thumb Industries enters Minnesota, reports Echelon Capital

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Andrew Semple, analyst at Echelon Capital Markets, turns to Green thumb industries (Green Thumb Industries Stock Quote, Chart, News CSE: GTII), maintaining a “Buy” rating and target price of C $ 55 / share for a near doubling of its expected return to 97.8% in one update to customers on Thursday.

Founded in 2014 and based in Chicago, Green Thumb Industries owns and operates manufacturing and retail facilities where it produces and distributes consumer cannabis products under its own line of brands including Dogwalkers, Rythm, The Feel. Collection and Beboe. Green Thumb currently has 17 manufacturing plants, 73 open retail outlets, and operations in 15 U.S. markets.

Semple’s updated analysis comes after Green Thumb announced the closing of the acquisition of LeafLine Industries at an undisclosed price, marking its entry into the medical marijuana market in Minnesota (State no. has yet to legalize recreational and adult cannabis).

“Despite the small size of the market, we believe the market is attractive from a business perspective, as this patient base is only served by two medical cannabis companies,” Semple said.

With the LeafLine acquisition now complete, Green Thumb now has access to a state of about 5.7 million people and about 29,000 patients active in medical cannabis since sales began in 2015, according to the ministry. Minnesota Health.

As part of the acquisition, Green Thumb is adding a number of new assets to its portfolio, including a grow facility in Cottage Grove and five operating retail outlets in Eagan, Hibbing, St. Cloud, St. Paul. and Willmar, with the option of opening up to three additional outlets in the state.

“We are excited to enter the Minnesota medical market and expand access to cannabis products for Minnesota patients,” Ben Kovler, Founder and CEO of Green Thumb, said in the press release. of the company of December 30. “We look forward to caring for existing LeafLine patients while ensuring a smooth transition. Going forward, we are ready to begin providing patients with access to high quality floral and edible products, both of which have been recently approved. “

Minnesota is the 15th state that Green Thumb has entered, with a footprint covering half the population of the United States, as it operates sites in California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada , New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Virginia.

Potential medical cannabis patients in Minnesota can be treated under 17 different conditions, the most notable being chronic pain which was added to the list in the third quarter of 2020.

The Minnesota market is set for a major product expansion in 2022, after approving the sale of flowers for smoking starting March 1, with edibles permitted starting August 1, adding variety to options of limited vape, tincture and topical products, which Semple says will drive demand due to the significantly accelerated adoption by patients in other medical conditions.

“Dried flowers typically account for around 50% of sales in mature medical markets where they are licensed, and edibles typically represent around 10% of total sales, indicating that there should be a significant margin for the market to expands as these new formats are introduced and the offering becomes more widely available, ”said Semple.

With LeafLine’s initial impact slated for 2022, Semple’s financial projections are unchanged as it predicts revenue will rise from the $ 556.6 million announced in 2020 to $ 897.2 million slated for 2021, a potential increase. 61.2% year-on-year. . In 2022, Semple predicts the company will cross the $ 1 billion mark, with the $ 1.21 billion projection marking a potential increase of 34.8% year-over-year. (All figures are in US dollars, unless otherwise noted.)

Semple also expects the EBITDA margin to widen over this period, from the $ 179.6 million reported in 2020 (32.3% margin) to $ 316.1 million ( 35.2%) in 2021, then peaking at $ 466.8 million (38.6 percent margin) in 2022; Meanwhile, the gross margin is expected to remain relatively stable in the mid-1950s.

From a valuation standpoint, Semple believes Green Thumb stands out from its peers as he predicts the EV / income multiple will drop from 9.3x in 2020 to 5.7x predicted in 2021 and then to 4.3x predicted. in 2022; in each case, the Green Thumb projection represents a half-price offer compared to the peer group’s projections of 18.5x in 2020, 11.5x in 2021, and 8.5x in 2022.

EV / EBITDA multiples follow a similar trajectory, with Semple projecting that the Green Thumb multiple will drop from 28.7x in 2020 to 16.3x in 2021 and then to 11x in 2022, doing well relative to the group’s averages of pairs of 57.5x in 2020, 32.7x in 2021 and 22.1x in 2022.

Overall, Semple believes in the potential of Green Thumb to make waves in Minnesota with its recent entry into the market.

“GTI has a strong track record of accretive acquisitions in the limited license medical markets, including recent purchases in Virginia and Rhode Island,” said Semple. “We are encouraged by Minnesota’s attractive growth prospects as a still emerging medical cannabis market, and the outlook for strong financial performance due to the state’s very restrictive licensing. “

The Green Thumb share price fell 13.7% during 2021, peaking at a 52-week high of C $ 48.71 / share on February 10.

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