There are many ways to look at who is a leading company in the cannabis industry. This week, Viridian Capital Advisors crunched the numbers in four different metrics to see which companies came out on top with regard to credit quality. Viridian only reviewed companies that have over a $100 million market cap. They used 11 different variables to measure four factors of credit quality: liquidity, leverage, profitability, and size.
Green Thumb Industries (OTC: GTBIF) came out on top based on all four factors. However, it really stood out for profitability based on high scores in projected EBITDA margins and funds from operation to assets. The company also scored highly for leverage. Viridian wrote in its note, “The most highly weighted of these ratios is total liabilities/market cap. GTI’s .36x is significantly better than the 1st quartile measure of .78x. GTI also scores well on the other three leverage indicators, which include a balance sheet ratio, a ratio based on funds from operation from the cash flow statement, and consensus projected debt/EBITDA.”
When it came to liquidity, Planet 13 Holdings (PLTH: OTC) came out at the top. Viridian analysts wrote that “based on its 6.4x current ratio and 5.5x on Viridian’s free cash flow adjusted current ratio. The latter augments the traditional current ratio by adding or subtracting annualized free cash flow to the numerator.”
The big kahuna for size went to Curaleaf (OTC: CURLF) which ranked number one in size based on both assets and market cap. Viridian wrote that “Size is positively correlated to credit quality for several reasons: Larger companies have typically been in existence longer and have more established business positions; they tend to be more diversified; and they tend to have more saleable assets to buffer unexpected cash flow shortfalls.”
Trulieve had a good showing coming in at second place for size and credit ranking. Coming in at the bottom of the chart was iAnthus (OTC: ITHUF). The beleaguered cannabis company that has been in a legal fight with shareholders was ranked last for liquidity and almost last for profitability and credit. While it wasn’t at the bottom of the list, Jushi also had a poor showing with a bottom ranking for leverage and credit.
Board members weren’t the only ones who resigned last week from marijuana company Green Thumb Industries (OTC: GTBIF).
The company’s general counsel, Beth Burk, also departed, according to a U.S. Securities & Exchange Commission filing made Oct. 7. Burk was a chief compliance officer at Aon before joining Green Thumb, one of Chicago’s largest cannabis companies, in early 2020.
Burk resigned Oct. 4, along with three of GTI’s four independent directors: YMCA of Metropolitan Chicago CEO Dorri McWhorter; William Gruver, a former Bucknell University professor and Goldman Sachs executive; and Glen Senk, a private-equity executive. All three were members of the company’s audit committee.
The company said when it announced the board changes, “the resigning directors informed management that their cause for resignation was not related to Green Thumb’s business performance, operations, financial performance, financial statements or financial controls, but rather over a disagreement as to the company’s policies and practices related to personal misconduct. It became clear that the former directors and existing management could not find a resolution satisfactory to all parties.”
GTI didn’t provide any details on the circumstances around Burk’s departure, nor did it respond to a request for comment.
“It’s not a good sign when the audit committee and general counsel depart in one fell swoop,” says Charles Elson, a corporate governance expert and retired professor of finance at the University of Delaware.
In its regulatory filing, the company disclosed the terse resignation letter from the three board members, which was written by Senk, a former CEO of Urban Outfitters who joined GTI when it went public in 2018. “We confirm our resignations from the Green Thumb board of directors as of 11:59 PM CT on October 3, 2022, because of our material differences with company management,” the letter states. “This correspondence supersedes our prior written correspondence to you on this matter.”
SEC filings did not contain any previous correspondence. The company also said in its filing that Jeff Goldman, one of two board members selected to replace those who resigned, has been working for GTI as a marketing consultant since November.
Green Thumb Industries Inc. (OTC: GTBIF) was accused of sex and age discrimination by a former employee that worked in a Rise dispensary in Pennsylvania. Carrie Baker filed the complaint on September 22, 2022, alleging that she was “forced out” for not fitting with the corporate culture, which was described to her as young, single men. Baker is in her mid-fifties and says she was passed over for a shift supervisor role given to a substantially younger male co-worker.
The issue dates back to 2018 when Baker filed a complaint against GTI with the Pennsylvania Human Relations Commission (PHRC) alleging both age- and sex-based discrimination in connection with a promotion that had been unfairly awarded to a less qualified, substantially younger male co-worker.
According to the complaint, Baker filed a complaint with the Pennsylvania Human Relations Commission and once GTI found out, Baker, who says she had never received a disciplinary write-up in her life, began to receive unfair, unfounded, and disproportionate disciplinary actions. She complains that GTI harassed her so much after she filed her complaint with PHRC that she ended up quitting in June 2019. She says she was replaced by a younger employee. Baker went on to file a complaint with the U.S. Equal Employment Opportunity Commission on or about February 11, 2020.
EEOC Closes Investigation
The complaint states that on or about June 27, 2022, the EEOC closed its investigation into both the PHRC Complaint and EEOC Charge—expressly noting that it was not making a determination as to the claims raised by Baker—and issued Baker her Notice of Suit Rights.
Baker said she had originally applied for an Assistant Manager job but was hired as a Patient Care Specialist, which paid less. She also accuses GTI of making diversity hires in order to get licenses in the state, but then pushed out some of those hires. Specifically naming Nzinga Morris (BIPOC); Kenita Honesty (BIPOC); Kathleen Newcomer (age 60+); and Marica McCarroll (age 50+) in her complaint.
She claims that store manager Tel White told her, “GTI was only looking to hire people like him, who were able to “pick up and leave” on a moment’s notice, if necessary.” She went on to complain that she performed the role of assistant store manager without the title and despite being turned down for the job. She also stated that a new role of Shift Supervisor was created and her younger male co-worker got that job. Baker says she complained to GTI’s human resources and also tried applying for higher positions at other Rise locations. She says she received good employee reviews, but once she filed the PHRC complaint, she was classified as needing improvement.
According to the complaint, GTI complained that Baker was searching for other employment during company time and had made negative remarks about management and her pay.
Baker says she is now working at the Pennsylvania Department of Health’s medical marijuana division.
GTI has 77 open and operating retail stores in 15 states. Green Thumb employs approximately 4,000 people. The company was named to Crain’s Chicago Business Fast 50 list in 2021 and 2022 and a Best Workplace by MG Retailer magazine in 2018, 2019, and 2021. The company has been requested to comment on the complaint.
Green Thumb Industries Inc. (Green Thumb) (CSE: GTII) (OTCQX: GTBIF) reported its financial results for the second quarter ending June 30, 2022. Revenue increased 4.8% sequentially and 14.6% year-over-year to $254.3 million from last year’s $221.9 million in the same time period. This easily beat the Yahoo Finance average analyst estimate for sales of $248 million. GTI said that revenue growth was primarily driven by increased retail sales in New Jersey, reflecting the legalization of adult-use cannabis; increased retail sales in Illinois; 19 additional retail locations versus the second quarter last year, and increased traffic in the Company’s 77 open and operating retail stores.
Net income in the second quarter of 2022 was $24.4 million or $0.11 per basic and $0.10 per diluted share, compared to a net income of $22.1 million, or income of $0.10 per basic and diluted share in the prior year period. This also beat the analyst estimates for earnings of $0.04.
“We are pleased with our second quarter results, especially in this challenging economic environment. Five percent revenue growth and greater than 300 basis point improvement in Adjusted EBITDA margins over the previous quarter demonstrate the results of our focus. We continue to maintain a strong balance sheet, which gives us ample flexibility to support our growth initiatives,” said Green Thumb Founder, Chairman, and Chief Executive Officer Ben Kovler.
GTI said its second-quarter revenue included sales from 77 retail stores in the following states: California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Virginia. Retail revenue increased 11.7% quarter-over-quarter. The only weak spot for GTI was that same-store sales were 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.
The company opened one new retail store in Minnesota, RISE Mankato. Profits from the first day of sales were donated to Habitat for Humanity of Minnesota (Habitat Minnesota).
“Despite the macro and consumer headwinds, our team continued to execute and build momentum. The complexity in U.S. cannabis makes us work harder and smarter every day to create long-term value for all our stakeholders. We are confident in our strategy, we believe in our brands, and we are committed to promoting well-being through the power of cannabis for the American people,” concluded Kovler.
Get ready for some cannabis companies to report boosted earnings as revenues got juiced from New Jersey adult-use sales. Cantor Fitzgerald analyst Pablo Zuanic thinks that the addition of this market could drive growth in second-quarter sales for several companies in a report he issued on Thursday. While there hasn’t been any official data from New Jersey on the number of sales, which began April 21, Zuanic thinks it could be as high as $60 million in the second quarter.
The first month was reported to be $24 million and since that time the store count has grown from 12 to 17. The SKUs at the stores have jumped from 283 to 1,322 as more products get added. Looking at the landscape the companies poised to benefit the most are TerrAscend (OTC: TRSSF) with three dispensaries in NJ selling recreational cannabis as does Ayr Wellness (OTC: AYRWF). Next with two stores under their belts are Verano (OTC: VRNOF), Acreage Holdings (OTC: ACRHF), Columbia Care (OTC: CCHWF), Curaleaf (CURLF), and Green Thumb Industries (OTC: GTBIF). Ascend Wellness (OTC: AAWH) taps in at one store, but its Montclair dispensary was been approved to start rec sales, however, Montclair won’t allow recreational sales.
Brick & Mortar Wins
In order to make his sales estimates, the analyst calculated the number of days during the second quarter that these companies could open their stores for business. Then he looked at the hours the stores were open and the market share that the operators had. He reviewed the online menus to determine SKU counts for the stores and further drilled down to in-store brands.
“If we define market share based on opening hours (prorated for when stores began rec sales), in 2Q22 Green Thumb and Verano would have had 19% share, TerrAscend 18%, Acreage 15%, Curaleaf 11% (its second rec store opened 5/24), Ascend Wellness 8%, Columbia Care 6% (extended rec opening hours from early June), and AYR 5% (its stores opened for rec on 6/14),” wrote the analyst. “If we define it based on SKU count, Green Thumb would have had 24%, Verano 23%, Ascend 17%, TerrAscend 11%, Curaleaf 9%, Columbia Care 3%, and AYR 2%.”
However, the geography and cannabis market in the state splits into three zones – North, Central, and South. He wrote in his report, “There are more stores in the northeastern part of NJ while the Curaleaf store in Bellmawr initially had minimal competition and benefited from incoming Philly traffic. We should also factor in location (next to a high-traffic road/ highway) and parking availability. Although this report is not a 2Q preview, we would estimate that Green Thumb and Verano had ~18% share in 2Q; Curaleaf, Acreage, and Ascend 15%; TerrAscend (parking is an issue) 10%; and Columbia Care and AYR the rest (9% combined).”
The analyst then got out his calculator and wrote, “On the base of 1Q22 reported sales (all else equal; again, we are not forecasting total 2Q sales here), this would mean +4.4% for Green Thumb (18% x $60Mn, on a 1Q22 sales base of $242.6Mn); Verano +5.3% ($10.8Mn/$202.2Mn); Acreage +15.8% ($9Mn/$56.9Mn); Curaleaf +2.9% ($9Mn/$313.4Mn); Ascend +10.6% ($9Mn/ $85.1Mn); TerrAscend +12.1% ($6Mn on $49.7Mn); AYR +2.4% ($2.7Mn/$111.2Mn), Columbia Care +2.2% ($2.7Mn/$123.1Mn).”
The analyst went a little further and found that the top five brands in the adult use market accounted for 80% of the total SKUs available. Verano was the winner here with 376 SKUs or 28% of the market share. It was followed by Curaleaf with 321 SKUs and a 24% share, then TerrAscend’s Kind Tree brand came in at 215 SKUs and 16% share. Green Thumb’s Rhythm brand had 6%, and Ascend Wellness’s Ozone brand had 5%.
Vapes had the most SKU’s with Verano leading the pack, while flower came in second and Curaleaf led that category. Curaleaf led the day for pre-rolls, while Verano mopped up with the edible category.
Most cannabis companies have been complaining about how challenging the cannabis industry has become. Mature markets are flattening out in sales and costs are going up, while prices come down. Consumers are being hit with inflation pressures and there are recession worries on the horizon. The addition of a new market and one that is looking to be a strong one is great news for these companies. Welcome to the Garden State.
Cantor Fitzgerald analyst Pablo Zuanic issued a report this morning in which he sees some value in the beaten-up cannabis group, although he also cautioned that numerous roadblocks remain. He was clear that the group may not have even found a bottom yet as prices continue to slide along with the broader market. Zuanic also noted that even the second quarter might not bring relief on valuations, but he is a selective buyer at these levels. Having said that he said investors may not see any meaningful upside for another two to three years and that it would probably only occur when some sort of federal reform occurs.
Zuanic wrote, “The MSOS ETF fell 25% in the last month vs. a 7% drop for the S&P500, and over the last three months it is down 49% vs. -15% for the SPX Index (yoy -75% vs. -12%). Even on risk-on days, when the larger Canadian LPs move up, MSOs either drop or stay flat. The MSO stock performance masks encouraging medium and long-term sales trends, with more states legalizing since 4/1 (NM, NJ), or soon to start rec sales (RI, CT/NY), or soon to vote to legalize (MD, MO); also, states like IL could see growth accelerate as more stores open, as we have recently seen in MI (+22% seq sales trends based on Apri/May data).”
If investors were hoping for some relief in the second quarter, then Zuanic dashed those hopes. He said that the second quarter boost will most likely only apply to those companies in New Jersey. Adult-use sales begin in the state on April 21 and sales have reportedly been very good. Plus, investors have been increasingly focused on profit margins and cash flows, which dampens buying. The companies with good cash flow are also beset with high taxes and debt levels are high.
“In this context, where it is difficult to call the bottom (as technicals and poor liquidity exacerbate stock swings and concerns about the lack of reform at the federal level and about state level fundamentals), we would tread carefully and are buyers only selectively of a few MSOs. We think the current state of affairs will lead to further consolidation (Columbia Care was at 0.9x debt to sales as 3/31/22, and we think that contributed to the decision to sell at the bottom) and benefit those in a stronger position,” wrote Zuanic. He says he is focused on quality and his top picks (in alphabetical order) remain: Cresco (CRLBF. OW) proforma (1.7x C23 EV/Sales), Curaleaf (CURLF, OW) (2.7x), Green Thumb (GTBIF, OW) (1.6x), and Trulieve (TCNNF, OW) (1.9x).
The analyst took a temperature read on sales in the second quarter based on data from Headset. He cautioned that it wasn’t official hard data, but did gather that second-quarter sales overall had improved from the first quarter. Most companies had reported that first-quarter sales dropped from the fourth quarter, so this improvement is welcome. However, early indications seem to say that sales dropped versus 2021 for the same time period. He believes these sales figures are competing with last year’s stimulus checks that consumers got during the pandemic.
Cannabis prices seem to be falling as much as the stock prices. The analyst cited Cannabis Benchmarks and pointed out that wholesale prices nationwide (in the 18 states it tracks) averaged $1,057/lb for the week ending 7/1, down 16% from 4/1/22 and down 20% YTD (-35% you). “Regarding key MSO states that we track: AZ -9% seq and -45% YTD; CA -4% and -20%; CO -9% and -17%; CT -10% and -9%; IL +1% and -12%; MA -7% and -37%; MI +4% and -43%; NV -5% and -14%. We realize lower wholesale prices sometimes may be neutral for companies just focused on retail, but most of the MSOs that we track have cultivation and tend to be vertically integrated,” he wrote.
With just 12 dispensaries open in the state, New Jersey still managed to ring up $24 million in sales in the first month. That’s roughly $5 million a week. According to the New Jersey Cannabis Regulatory Commission, “On the first day of adult-use sales in New Jersey, 12 participating dispensaries sold cannabis and cannabis products to 12,438 recreational cannabis customers for a total gross sale of nearly $1.9 million.” BDSA expects New Jersey to be the third-largest contributor to overall US sales growth by 2026 and is forecast to generate annual revenue of $2.3 billion in total legal cannabis sales.
“We expected sales to be substantial and the data shows that the market is effectively serving both adult-use consumers and patients,” said Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission. “We continue to monitor inventory and access for patients and are prepared to take enforcement action against any ATC that does not meet the requirements for patient access and supply.” The CRC has approved 102 conditional licenses to date.
This is sparking the existing operators to keep ramping up as licenses expand. Columbia Care Inc. (NEO: CCHW) (CSE: CCHW) (OTCQX: CCHWF) said it has started operations in its new, approximately 270,000-square-foot cultivation and production facility in New Jersey. Col-Care has also begun using post-harvest automation equipment and expanded its adult-use shopping hours at both of its Cannabist locations in Deptford and Vineland to the maximum number of hours allotted by the New Jersey Cannabis Regulatory Commission (CRC). The company said it received approval from the New Jersey CRC to do so on May 25, 2022, along with the approval to begin using post-harvest automation equipment. Col-Care said the introduction of this equipment will reduce the “harvest to shelf” time for products, making it easier to meet the rapidly-growing patient and customer demand.
“After ten years of navigating the ever-evolving cannabis industry in various markets, we have so many lessons learned and have been able to bring those to bear in how we approach New Jersey, knowing how it will serve as a model for those east coast states transitioning to adult use in the near term. We are proud of how we managed to scale alongside the demand in the last month and are thrilled to be able to serve more patients, customers, and wholesale partners with our newest cultivation facility and equipment,” said Nicholas Vita, CEO, of Columbia Care. “As always, we owe a debt of gratitude to the CRC as well as local officials and our communities for their support in our efforts to make New Jersey one of the strongest cannabis markets in the world and a beacon for the industry.”
In addition to the new 270,000-square-foot cultivation, manufacturing, and processing facility, Col-Care also operates a 50,000-square-foot facility, located in Vineland. The company has a third retail location in development in New Jersey, which is expected to open later in 2022.
Green Thumb Industries
Green Thumb Industries (OTC: GTBIF) CFO Anthony Georgiadis said on the company’s recent earnings conference call, “New Jersey adult sales kicked off on 4/21 and early results look yearly similar to Illinois circa, January 2020. We just completed a wholesale facility expansion in Paterson. We have a new facility that’s about to break ground. So, long-term, we’re confident in our prospects of being a big player within the wholesale side of the New Jersey market.” The company did acknowledge the lack of products on the adult-use side of the store versus the medical side, but that is due to the state regulators’ preference to remain focused on the medical patients. CEO Ben Kovlar said on the same call, “There’s a lot of demand for this product. If there wasn’t, there would not be people lined up around the corner at these stores in New Jersey. So that’s what gives us a lot of conviction. There ends up being a lot of upside.”
Curaleaf Holdings, Inc. (OTCQX: CURLF) is another New Jersey company enjoying its expansion efforts. Curaleaf began new adult-use sales at its Edgewater Park on May 25. It’s the company’s second location to sell adult-use cannabis in the Garden State and the 13th adult-use store to be added in the state. “After a successful adult-use launch in April, we are thrilled to expand our adult-use footprint allowing us to serve even more New Jersey consumers,” said Matt Darin, CEO of Curaleaf. “I’d like to thank the Town of Edgewater Park for their partnership and for so graciously welcoming us into the community. Curaleaf is committed to ensuring patients and consumers receive quality products and service as they embark on their cannabis journey.”
Last month, medical operator Ayr Wellness (OTC: AYRWF) got its green light to begin adult-use sales. “We are thrilled to be approved for adult-use sales in New Jersey and to have all three dispensaries cleared simultaneously to open for adult-use,” said Jonathan Sandelman, Founder, Chairman and CEO of Ayr. “To date, Central Jersey has the lowest number of dispensaries per capita, leaving its population under-served compared with the rest of the state. New Jersey is expected to become a highly influential state for the U.S. cannabis industry, and we are honored to help shape the market landscape from its early stages.” The company is working on opening its first adult-use store.
After the market closed on Wednesday, Green Thumb Industries Inc. (CSE: GTII) (OTCQX: GTBIF) reported its financial results for the first quarter ending March 31, 2022, with revenue rising 25% year-over-year to $243 million. This was flat compared Green Thumb’s fourth quarter of 2021, but it beat the Yahoo Finance average estimate for earnings of $236 million.
GTI also reported that its net income for the first quarter was $28.9 million or $0.12 per basic and diluted share, compared to a net income of $10.4 million, or $0.05 per basic and diluted share in the prior year. This beat the Yahoo Finance average analyst estimate for earnings of $0.06.
“Our team delivered solid first-quarter results with revenue increasing 25% over the prior-year quarter. We generated our seventh consecutive quarter of positive net income of $29 million, or $0.12 per share, and Adjusted Operating EBITDA of $67 million. For the ninth consecutive quarter, we delivered positive cash flow from operations, which was $55 million in the first quarter,” said Green Thumb Founder and Chief Executive Officer Ben Kovler. “We continue to have strong conviction in our core thesis and given the opportunity ahead, we will invest in markets where we know demand is coming. As I have said before, growth is not linear and there will be quarter-to-quarter fluctuations depending on when new markets open to adult-use sales as well as the timing of our infrastructure investments. Our preparations in New Jersey positioned us well for demand on Day One, and we feel confident in our playbook for future adult-use transitions.”
Same-Store Sales Fall
GTI said that retail revenue decreased by less than 1% quarter-over-quarter. Comparable sales growth (stores opened at least 12 months) were down 3% on a base of 51 stores. Sequential quarter-over-quarter comparable sales were down 6% on a base of 65 stores.
Still, the company continues to invest for the future even as it faces pricing pressures and rising costs.
In March, Green Thumb began sales of flower products in Minnesota. After the quarter ended, New Jersey’s Cannabis Regulatory Commission approved seven medical marijuana operators, including Green Thumb, to begin selling adult-use cannabis on April 21; RISE Bloomfield and RISE Paterson were among the first stores to begin adult-use sales on Day One.
“We believe that all our markets will eventually open to adult-use sales—we don’t know exactly when—but we do know that Americans are choosing cannabis for well-being and our trusted family of brands are well-positioned for the future. There is tremendous opportunity in this Great American Growth story, and we believe that the approximately $25 billion legal U.S. cannabis market will have significant growth over the next decade,” concluded Kovler.
Benchmark analyst Mike Hickey said in a Thursday research note that the company’s drop in Ebitda “largely reflected inflation on raw material input and additional compensation for talent throughout the organization. The decrease also reflected pricing headwinds in Pennsylvania, Nevada and Massachusetts. We are cautious on inflationary impacts over the consumer and operating expenses, which could sustain over the medium term.”
The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis