THE HEDGEYE EDGE
It’s clear 2019 is full of potential catalysts for the cannabis industry, in particular for the U.S. operators. From particular states enacting medical and adult-use programs, to the potential for federal legislation such as the STATES Act (which is a blessing and a curse). Although most companies that are participating in the market will be winners in this environment, we are working to pick the winners that will be successful long-term. Green Thumb Industries (GTBIF) is building a platform to solidify their current business while enabling efficient and repeatable future growth.
When looking at multi-state operators (MSO's), it is critical to look beyond just what states they are in, and look at what they are actually executing, and most importantly who ‘they’ are. Recently, we toured GTI’s facilities in Maryland with their head of capital markets, Andy Grossman, to get a better sense of their business. We had the pleasure of seeing two dispensaries as well as their production facility, which they are adding 30,000 square feet (including new cultivation space), in addition to their existing 6,000 square feet (purely production space) - a truly impressive operation. After a day on the ground, not only did we gain greater confidence in their process and platform, but their extensive bench of personnel working for the company at all levels. We can’t emphasize this point on personnel enough.
Brands, brands, brands. You hear it all the time in this industry, “we are going to build a national brand!” But who is actually doing it? GTI is focused on both a wholesale and retail model. They want to provide the best possible experience to the consumer, so supplying both their own, and third-party brands is critical. Along those same lines, selling their top-notch brands such as rythm and Dogwalkers through the wholesale market to spread their distribution across more doors is core to their strategy. These are brands that have a consumer appeal and a use case that is very apparent, that’s how large CPG companies build brands, so we are confident this strategy will persevere in this industry.
Another critical component to our diligence process is corporate governance and focus on shareholder value. GTI executives are focused on long-term value of their equity, not on taking huge salaries. They are for the most part seasoned executives with secure financial positions. GTI also displayed a solid understanding and respect for four-wall economics, as traditional restaurant analysts this is music to our ears.
GTI is our first best idea long in the US space as we feel they are one of the best positioned MSO's to capitalize on the growing market opportunity in the US. There is line of sight to GTI providing a 2-3x return over the next few years.
ONE-YEAR TRAILING CHART
