Marijuana industry shakeout strengthens GTI and Cresco

The coronavirus, along with fast-growing new markets such as Illinois, has lifted the marijuana industry out of its funk.

Green Thumb Industries and Cresco Labs, two Chicago-based companies that navigated a brutal 12 months when badly needed capital for expansion was scarce but thrived as “essential businesses” during the pandemic, now find themselves among the leaders.

They’re the best-performing stocks among U.S. cannabis companies that operate in multiple states. GTI shares traded at $14.04 on Sept. 2, up 244 percent from a March 16 low of $4.08. Shares of Cresco were up 205 percent to $6.11. Massachusetts-based Curaleaf Holdings, which acquired Chicago-based Grassroots in July, is the third-best-performing stock among multistate operators.

“Everyone talks about the Big Four: It’s GTI and Cresco, and Curaleaf, then Trulieve, which is an outlier in a single state (Florida),” says Scott Fortune, an analyst at Roth Capital Partners in Newport Beach, Calif. “It’s kind of like the tech bubble of 2000: At first, it was about raising capital and getting and deploying as many licenses as you can. When the downturn happened and capital was difficult to raise, those who really focused on operating and focused on a few states to reach operating profitability were able to separate themselves.”

Having survived the first shakeout of the fledgling weed industry, GTI and Cresco will have better access to capital for the next wave of growth. And their rising fortunes cement Chicago’s stature as a hub of the fast-growing cannabis industry. In addition to GTI and Cresco, it’s home to two other multistate players, PharmaCann and Verano Holdings. Both called off plans to be acquired by publicly traded companies, but they’ve raised more capital and are pushing ahead as private companies.

To stay at the top, GTI and Cresco will have to prove to investors, who remain scarce because marijuana is still illegal under federal law, that they can turn profits while continuing to grow. In the short term, they’ll need more capital to expand if states where they operate, such as Pennsylvania and New Jersey, allow recreational sales. Later, they’ll need additional financing to develop national consumer brands that will be crucial to long-term survival.

GTI and Cresco have ridden the strength of the Illinois market, which opened for legal recreational marijuana sales in January, to provide better-than-expected results in the first two quarters of this year. It’s also helped that weed has been deemed an essential business in most states.

In addition to quickly opening new stores, GTI and Cresco have expanded their cultivation operations, and they’re benefiting from selling marijuana to other dispensaries. Cresco’s 42 percent revenue growth between the first and second quarters was the best of any multistate operator, says Pablo Zuanic, an analyst at Cantor Fitzgerald.

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