Last year was supposed to be marijuana’s true moment in the sun, with the industry proving to Wall Street and investors that it could translate strong sales growth in recurring profits. Unfortunately, things didn’t go anywhere near as planned.
In Canada, supply issues have adversely impacted the weed industry since day one of adult-use sales on Oct. 17, 2018. These problems have been perpetuated by regulatory agency Health Canada delaying the launch of derivative products and struggling to approve cultivation and sales licensing application in a timely manner. We’ve also witnessed Ontario, Canada’s most-populous province, seriously slow-step the rollout of physical dispensaries. Only 24 stores were open on the one-year anniversary of recreational weed sales, leading to a supply bottleneck and a still-thriving black market.
Meanwhile, high tax rates and…
Swiss cheese-like approvals that allow jurisdictions the right to deny cannabis retailers a presence have made life difficult for U.S. pot stocks. High taxes on marijuana products have especially problematic in California, where legal sales have been virtually stagnant for two years.
But according to Wall Street investment bank Stifel, the decline in cannabis stocks in 2019 opens the door to some intriguing values in the U.S. market. Stifel recently singled out two vertically integrated multistate operators (MSO) as its favorites.
Green Thumb Industries
The first is Green Thumb Industries (OTC:GTBIF), which offers investors up to 176% potential upside, based on the closing price of GTI (as the company is known) the day prior to Stifel issuing a $32 Canadian target price ($24.47 U.S.).
Stifel’s primary reason for being enamored with Green Thumb has to do with the company’s cash flow, which is considerably higher than that of its peers. A quick peek at GTI’s third-quarter operating results shows that it nearly quadrupled year-over-year sales, and improved sequential quarterly revenue by a whopping 52%. Although the company still wound up losing $17.1 million, EBITDA and adjusted operating EBITDA came in at $1.6 million and $14.1 million, respectively, which reversed year-ago losses in both metrics. This would appear to suggest that GTI is really close to turning the corner to profitability, especially with a number of new dispensaries having been opened in 2019.
The plan for GTI in 2020 continues to be retail expansion, retail expansion, and more retail expansion! Last year, it acquired Integral Associates in Nevada, giving the company a presence in a market that could feature the highest per-capita cannabis spending in the country by 2024, according to the State of the Legal Cannabis Markets report by Arcview Market Research and BDS Analytics. It’s also ramping up its presence in Illinois, which commenced adult-use marijuana sales on Jan. 1, 2020…
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