GTBIF Earnings (LONG).
Green Thumb Industries GAAP EPS of $0.11 and revenue of $254.3M in 2Q22.
While slowing cannabis industry sales in the U.S. remain a considerable headwind for the entire sector going into 2Q22 results, industry sales are only growing 7% sequentially (compared to this time last year growth of 49%) and compressed -2% on a YoY basis (compared to this time last growth of 16%), Green Thumb was able to print better than solid results. In 2Q22, GTBIF could grow its top line figures and improve margins.
GTBIF 2Q22 revenue increased 14.6% year over year to $254.3 million (the Eighth consecutive quarter of positive GAAP net income) and delivered $24.4 million or $0.11 per share. Increased retail sales primarily drove the revenue growth for the quarter in New Jersey due to the legalization of adult use in the quarter. Other drivers included increased sales strength in Illinois, which they expect to continue as social justice licenses have just been issued after two years of waiting, and the opening of 19 new retail locations versus 1Q22 (which brings their total retail store base in the country to 77). Retail revenue increased 11.7% quarter-over-quarter. Comparable sales growth was down 1.5% on a base of 56 stores. Sequential quarter-over-quarter comparable sales were up 9.9% on a base of 73 stores.
During the quarter, the company generated gross margins of 49.5%, a 120 basis point decline over 1Q22. This decline was primarily driven by the company's decision to allocate a portion of its SG&A expenses into its cost and goods, resulting in a closer alignment of management's view of the business with its GAAP reporting. The allocation negatively impacted 2Q22 gross margins by approximately 150 basis points but did not impact adjusted operating EBITDA margins. Pricing headwinds in Maryland, Nevada, Massachusetts, and Pennsylvania, along with inflationary cost pressures, were offset by strong performance in New Jersey and other states. EBITDA was 34% of revenue versus 29.7% of revenue for the comparable period. Adjusted Operating EBITDA, which excluded non-cash stock-based compensation of $6.8 million and other non-operating adjustments of ($14.6 million), was 31% of revenue compared to 35.7% of revenue in 2Q21.
All told, GTBIF growing ~5% QoQ was driven by new market legalization, and a SSS of down 1.5% jives with the industry trends we are seeing in the U.S. of down 2% YoY. New Jersey saw $24M in cannabis sales across 12 open retail stores after the first 30 days. The Company expects an expansion in C.T. and R.I. by the end of the year when adult-use sales finally occur. Interestingly, management’s comments about federal reform were very bleak, but even more bleak were their comments about the potential of the New York market. N.Y. has been seen as a considerable bull case for this Company. During their earnings call, management basically shut the door on any opportunity there in the foreseeable future as they cited botched legalization efforts and a black-market environment that could be worse than L.A. (THAT’S HARD TO DO). GTBIF remains a long for Hedgeye Cannabis as they performed admirably in a quarter on consumer weakness, industry headwinds, and no help from federal legislators on any topic (banking, taxes, social justice, legalization).
Illinois Sales Tracker
The state continues to see pricing destruction.
We got data for the Illinois adult-use (ex-medical) cannabis market for July. We saw that the average price per adult-use item sold decreased for the third consecutive quarter and a large trend that we have seen since January of 2021. July saw price destruction of 0.5% on an MoM basis and a decrease of 8.5% YoY. Cannabis prices topped out in October of 2020 and since have fallen 13.6%. Total adult-use sales in July saw a nice tick up for 7% on the month, compared to -2.3% in the previous month, but a deceleration on a yearly basis, growing 6.2% in July compared to 9.8% in the previous month and 11.5% in the month before that. We will have to wait and see what Illinois reports for their July medical cannabis sales to get a full read-through of the market, but as it stands today, pricing power remains the biggest headwind for this state to see substantial growth in monthly sales.
WEED CAUSING AN UPTICK IN COLLEGE APPLICATIONS?
In a recent study, researchers found that colleges located in states that have a legalized adult-use cannabis market see an uptick in applicants with no visible decline in the quality of students that are applying. Who said stoners couldn’t be smart and have ambition? The study showed that applicant pools grow roughly 15% when a state enacts legalization of adult-use cannabis, with more pronounced increases in early adopters like Colorado, which saw a 30% increase in their applicant pool. Later adopters of cannabis reform can expect less of an increase as the cannabis movement spreads to more states. The most interesting part of this study shows that early adult-use cannabis adopters might also be getting a better students, “We interpret this to mean that, at best, [recreational marijuana] availability improved student cohort quality and, at worst, had no effect.” I personally couldn’t think of a better way to cope with the stresses of college than finishing finals week off by sharing a big ole blunt with some classmates.
