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Green Thumb Industries (OTC:) (CNSX:GTII), a prominent figure in the cannabis industry, has announced a $50 million share repurchase program to be implemented over the next 12 months. The decision, approved by the company’s board on September 5, 2023, reflects its strong financial health and the board’s confidence in its future performance.
The share buyback program comes at a time when Green Thumb Industries continues to outperform expectations despite the overall sluggish growth and financial instability in the cannabis sector. The move is not obligatory but serves as a strategic initiative to support the stock price, especially following last year’s sharp 61% decline.
This decline was not exclusive to Green Thumb; other multi-state operators (MSOs) experienced similar downturns. However, recent developments indicate a potential rally in cannabis stocks, spurred by news that the U.S. Department of Health and Human Services is recommending a change in cannabis classification from Schedule I to Schedule III.
Even so, valuations for cannabis companies remain significantly lower than they were a few years ago. Investors are currently not paying even three times the sales for some of the largest and best-performing MSOs in the country.
In such market conditions, share buybacks can be an effective use of capital, particularly when there are no other appealing investment opportunities. With the board authorizing up to $50 million for repurchases, Green Thumb has the flexibility to buy back shares at its discretion. This strategy is often favored over paying dividends as it does not create an expectation of continued payouts among investors, thus reducing pressure on the company.
As of August 8, 2023, it was operating 84 retail locations across 15 key markets in the U.S. The company’s second quarter report showed a quarter-over-quarter net sales increase of 2%, amounting to $252.4 million, with a net income of $13.4 million, representing a solid 5% of its top line.
Moreover, the company’s cash flow has been impressive, often surpassing other MSOs. In the first half of 2023, Green Thumb generated $93 million in cash from its daily operations.
The share buyback program signals to investors that management is confident about the company’s business trajectory and performance. Currently, Green Thumb Industries stands out as a promising investment option in the cannabis sector. Despite not being listed on a major exchange, it has access to the largest cannabis market globally – the U.S. This advantage, combined with strong earnings and cash flow, makes it one of the safer stocks to own in this industry.
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