Bigger, Faster, Stronger
A wave of quarterly reports in recent days means most of our companies have reported—the exceptions being Jushi (JUSHF) and TerrAscend (TRSSF), which has preannounced.
And the verdict from these reports is clear and simple: Business at these companies is booming!
I’ll provide details on the latest reports below, but by my analysis, the most attractive of the group can now be described in three words, Bigger, Faster and Stronger.
Bigger refers to revenues. The biggest now are Curaleaf (CURLF), Green Thumb (GTBIF) and Cresco (CRLBF).
Faster refers to the rate of revenue growth. The fastest-growing now are Cresco, Innovative Industrial Properties (IIPR) and Curaleaf.
Stronger refers to the stocks’ momentum. The strongest now are GrowGeneration (GRWG), TerrAscend (TRSSF) and Cresco.
One investing strategy is to simply buy the one stock that appears on all three lists, which is Cresco. That might work out fine; concentration is good if you’re in the right stocks. But buying the strongest stock does bring the risk that you’ll buy near a peak. I know; I’ve done it many times.
So I continue to recommend that you be diversified; buy at least a few. Try to buy on pullbacks, or on solid bases, which we see today on Canopy Growth (CGC), Curaleaf and Green Thumb. And once you’re in, accentuate the positive. Sell losers and laggards and average up in your winners.
As I write, our position in GrowGeneration is substantially overweight (it’s grown to 19% of the portfolio), and while I’m considering pruning the position, I’m not quite ready to act yet. GrowGeneration is our lead sled dog. On the buying side, if JUSHF can break out above 3.4, I’d like to average up. But for now, I’ll make no changes. The tide remains in our favor.
And now, on to the reports.
Cresco Labs (CRLBF) reported third quarter revenues of $153 million, up 63% from the quarter before and up a massive 323% from the year before, and record adjusted EBITDA of $46.4 million, up 182% from the previous quarter.
Wholesale was a big part of the business at $90.5 million, making Cresco the biggest wholesaler in the industry. The report commented, “Wholesale growth was driven by an increase in harvests from expanded capacity in Illinois and Pennsylvania with strong growth in California. Retail growth was driven by strong sequential same-store growth and two new store openings in Illinois.” Cresco is now operating in nine states but has “only” 19 dispensaries. Wholesale is its strength today, and that’s proven a good strategy so far.
Curaleaf (CURLF) reported third quarter revenue of $182 million, up 55% from the prior quarter and up 195% from the year before. Adjusted EBITDA was $42.3 million, more than four times the previous year’s level.
The quarter’s major achievement was the closing of the acquisition of Grassroots (privately held), which brought Curaleaf into 6 new states, including high-growth markets Illinois and Pennsylvania, and enabled Curaleaf to leapfrog to the top of the list, at least by size. All told, the company currently operates in 23 states with 96 dispensaries, 23 cultivation sites and over 30 processing sites—and is well-positioned to serve the adult-use markets in Arizona and New Jersey as they develop.
Green Thumb (GTBIF) reported record third quarter revenue of $157.1 million, up 31% from the prior quarter and up 131% from the prior year, as well as positive cash flow from operations for the third consecutive quarter. EBITDA was $48.7 million or 31.0% of revenue as compared to $9.1 million or 13.3% of revenue for the third quarter 2019.
As of September 30, 2020, Green Thumb’s family of consumer brands were produced, distributed, and available in retail locations in eleven states: California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Ohio and Pennsylvania. And after the quarter, the company expanded its retail presence in Illinois and New Jersey. Today, Green Thumb has 13 manufacturing facilities, licenses for 96 retail locations and operations across 12 U.S. markets.
GrowGeneration (GRWG) reported third quarter revenues of $55 million, up 152% from the prior year. Same-store sales were $33.4 million versus $19.2 million the year before. Adjusted EBITDA was $6.6 million, up from $2.0 million the prior year.
On the acquisition front, the company was active. On August 10, the Company purchased the assets of Emerald City Garden, located in Concord, California. On October 12, the Company purchased the assets of Hydroponics Depot, located in Phoenix, Arizona. And on October 20, the Company purchased the assets of The Big Green Tomato, a two-store chain in Battle Creek and Taylor, Michigan.
Lastly (and biggest of all), on November 2, GrowGeneration announced an agreement to acquire The GrowBiz, the nation’s third-largest chain of hydroponic garden centers. The GrowBiz is a $50 million chain of five garden centers in California and Oregon and, when completed, will increase the total count of GrowGeneration garden centers to 36. GrowGeneration’s goal is to reach 50 garden centers and 15 states in 2021.
As I’ve mentioned before, GrowGeneration is a business that’s totally legal under federal law (as are Innovative Industrial Properties and Turning Point Brands), and thus professional investors (many of whom cannot or will not buy marijuana stocks) have no reservations about investing in the company—and that’s one reason the stock has been so strong.
Trulieve (TCNNF) reported third quarter revenues of $136.3 million, up 13% from the prior quarter and up 93% from the prior year, and adjusted EBITDA of $67.5 million, or 50% of revenue, representing the 11th quarter of consecutive growth and profitability.
The company opened nine stores in the third quarter, achieving its 2020 goal of 68 stores nationwide. It was awarded a processor permit in West Virginia, achieving a presence in six states. And just last week the company announced the closing of the acquisition of PurePenn and Keystone Relief Centers. At a cost of $66 million, this acquisition gets the company a strong foothold in Pennsylvania with a 35,000 sq. ft. growing and processing facility (soon to be expanded to 90,000 sq. ft.) and three operational medical marijuana dispensaries.
And from my perspective, the company needs that route to expansion. Focusing almost exclusively on Florida did enable the company to turn profitable years before most of its peers, but Trulieve has lost a step in the race to get bigger in recent quarters and now it’s playing catch-up.
FYI, our portfolio is now up 56.1% YTD, while the Marijuana Index is up 10.1%.
I’ll send you a full report next week, loaded with charts and tables.