Near-Term Price Compression Weighs on Green Thumb’s Fourth Quarter; Long Term Remains Attractive

Green Thumb’s GTII results remained solid though price compression weighed on the fourth quarter. As such, revenue declined 1% sequentially to $259 million and adjusted EBITDA margin narrowed about 100 basis points sequentially to 31%. We anticipated current economic conditions and pricing dynamics to weigh on the fourth quarter, so results were within our expectations. Our long-term outlook remains unchanged as we continue to expect Green Thumb to benefit from widening legalization and organic growth in already-legalized states. Our fair value estimates of $45 and CAD 61 per share are unchanged for no-moat Green Thumb. Shares remain very undervalued as we think the market misconstrues the near-term growing pains and lack of progress on changing federal prohibition as indications of the legal market’s long-term potential.

Although a Republican-controlled U.S. House of Representatives adds a new challenge, we still believe some form of easing prohibition will pass by the end of 2023. Furthermore, even if we don’t get the exact year correct, we remain confident federal rules will change eventually given broad bipartisan support. Getting the exact timing correct has minimal impact on our fair value estimate, as most of the value comes from the long-term market potential rather than near-term results. We reiterate the ideal exposure of the undervalued U.S. multistate operators like Green Thumb over the Canadian LPs under our coverage.

Green Thumb hit $1 billion in revenue for the first time in 2022 with adjusted EBITDA of $311 million. Further, our long-term outlook is unchanged, with 2025 forecasts for revenue and adjusted operating EBITDA of $2.8 billion and more than $1 billion, respectively.