Green Thumb Industries (GTBIF +0.65%) generated $306.7 million in second-quarter revenue, $84.3 million in normalized EBITDA, and another $29 million in operating cash flow. It also made $4.9 million in GAAP net income.
Those numbers aren’t particularly common in the U.S. cannabis industry, where plenty of operators still struggle to consistently generate profits and cash flow. Green Thumb has managed to do both while maintaining one of the stronger balance sheets among large U.S. cannabis companies.
So why does the company still have a market capitalization of only about $1.7 billion?
The business continues to grow
Second-quarter revenue increased 4.6% year over year, driven partly by Minnesota’s recreational cannabis market and continued growth in Connecticut, Florida, and Ohio. The company is also positioned for another potential growth market in Virginia, where recreational cannabis sales are scheduled to begin July 1, 2027. Green Thumb already operates six RISE dispensaries and a cultivation and processing facility in the state.
Image source: Getty Images.
While growth isn’t particularly spectacular, Green Thumb isn’t sacrificing its balance sheet to get it. In this market, that’s no small feat. The company finished June with $283.6 million in cash against $283 million in total debt. It also generated $29 million in operating cash flow during the quarter. Management has been using some of that cash to buy back stock.
Green Thumb repurchased the equivalent of 7.9 million subordinate voting shares for $48.3 million during the second quarter. Since beginning its repurchase program, the company has bought back approximately 29.5 million shares for $203.4 million, at an average price of $6.90 per share. That’s a legitimate vote of confidence from management.
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To be sure, Green Thumb isn’t immune to the problems facing the broader cannabis industry. Gross margin fell from 49.9% a year ago to 45% in the second quarter, largely because of licensing fees and continued price compression. Comparable retail sales also declined 1.1%.
Still, Green Thumb has something many cannabis companies don’t: financial flexibility. With nearly as much cash as debt and positive operating cash flow, it doesn’t need booming cannabis prices or aggressive capital raises just to keep the lights on.
Is Green Thumb still undervalued?
At around $8 per share, Green Thumb’s market capitalization would be roughly $1.7 billion, or about 1.5 times trailing revenue. That’s not dirt cheap for a company growing revenue at a mid-single-digit rate. But Green Thumb isn’t a typical cannabis operator, either. It’s profitable. It generates cash. Its balance sheet is relatively clean. And federal cannabis reform provides additional upside that isn’t necessary for the company to survive. If you’re willing to accept the regulatory risks and continued pricing pressure, Green Thumb still looks inexpensive relative to the quality of the underlying business.
The bigger question here really isn’t whether Green Thumb can survive the cannabis industry’s ongoing shakeout. It’s how much investors will eventually be willing to pay for one of the operators that already has.
