Green Thumb Industries Earnings (GTBIF)
GTBIF is a Hedgeye Cannabis Best Idea LONG.
GTI kicked off earnings seasons for the US MSOs with a fantastic quarter. The company beat consensus estimates and had another record quarter on the top line, reporting revenues of $157.1 million versus FactSet Consensus $135.4 million, an increase of 31% QoQ, and 131% YoY. Revenue growth was driven primarily by the increased scale in the company’s Consumer Packaged Goods and Retail businesses, particularly in Illinois and Pennsylvania. While revenues grew 31%, OpEx stayed relatively flat at $49.7 million, growing just 22bps QoQ. The company sequentially expanded both gross margins and EBITDA margins while delivering positive net income for the first time. Gross margins improved 220bps QoQ to 55.4%, while adjusted operating EBITDA margins expanded 2060bps QoQ to 50.2%. Net income was $9.6 million versus FactSet Consensus $2.9 million, compared to a net loss of -$14.6 million for the comparable period last year. As of September 30, 2020, the company had cash and cash equivalents of $78.1 million, with total debt of $97.1 million, a manageable position.
On the wholesale side, gross branded product sales grew sequentially by approximately 32.6% QoQ, driven primarily by expanded product distribution. The company completed the initial phase of its manufacturing facility in Oglesby, Illinois, and began producing and distributing its brand portfolio from that facility during the third quarter. The company also added branded-product production and distribution capabilities to two new markets, New Jersey and Ohio.
Retail-wise, revenue increased sequentially by 27.9% QoQ, primarily driven by increased foot traffic in established stores. Across Green Thumb’s 48 retail stores in ten states, comparable sales growth (stores opened at least 12 months) exceeded 65.0% on a base of 25 stores, driven primarily by increased transactions. Sequential quarter-over-quarter comparable sales were up 17.9% on a base of 42 stores.
Acreage Holdings Earnings (ACRGF, CGC, STZ)
Acreage continued its narrative as an underperforming MSO by missing consensus estimates on the top line; however, there was a slight improvement on the margins. The company reported revenues of $31.7 million versus FactSet Consensus $36 million, an increase of 17% QoQ, and 42% YoY. Partner revenue was $17.0 million, growing 2% QoQ and 79% YoY. Gross margins were at 42.5%, improving 110bps QoQ but falling 80bps YoY. The YoY gross margin decline was largely due to a one-time significant wholesale opportunity in Massachusetts, which did not repeat this year. Adjusted EBITDA was a loss of -$6.9 million compared to a loss of -$11.7 million in the same period in 2019.
Earlier this week, Acreage announced that they would be commencing adult-use sales in Massachusetts with the opening of The Botanist dispensary in Shrewsbury, MA, Acreage’s second retail dispensary in the state. Additionally, The Botanist dispensary in Worcester, MA, began adult-use sales while continuing its medical sales.
M&A in the private space, with Verano acquiring AltMed
Verano Holdings, a leading private MSO, announced the signing of a definitive merger agreement to acquire and combine operations with Alternative Medical Enterprises, LLC, Plants of Ruskin, LLC, and affiliated companies (collectively, “AltMed”), vertically-integrated cannabis companies that apply pharmaceutical industry standards to developing, cultivating, producing, and dispensing medical cannabis and medical cannabis products in Florida and Arizona.
Verano is active in 12 U.S. states, with 17 active retail locations and approximately 440,000 square feet of cultivation facilities. Verano has been profitable each year since its founding. AltMed, founded in 2014 and profitable in recent years, is a fully-integrated medical cannabis company with 27 active retail locations, 220,000 square feet of cultivation facilities in Florida, and 30,000 square feet in Arizona.
The combined entity will establish Verano as one of the three largest MSOs in the United States based on 2021 internal projections compared to current FactSet 2021 consensus estimates for revenue and EBITDA. CEO of Verano, George Archos, commented, “This combination will create significant opportunity to expand our business into limited-license markets and scale both our wholesale and retail operations. We have created a thoughtful model for long-term success and a solid platform to deliver what we expect to be an industry-leading EBITDA margin on a pro forma basis. In addition, our combined strong balance sheet should provide us with the financial flexibility to expand operations and go deeper in states in which we operate.”
