It's easy to see why investors might suspect that Green Thumb Industries' (GTBIF 0.78%) best days are behind it. The wild times of the 2021 marijuana stock bull market that saw its shares fly are in the increasingly distant past, and during the past five years, the stock is down by 14%.
But there's a lot going on under the surface here that bears closer examination. Giving a simple yes or no answer up front to the question of whether it's too late to invest would miss key details. So let's dive in and figure out what this business might be like in the future, as that'll determine whether it can one-up the past.
The first marijuana stock bull market is long over
The argument for it being too late to invest in Green Thumb is essentially that the moment of greatest opportunity for marijuana stock investors is in the past, and it isn't coming back.
The company's quarterly revenue rose by 897% since five years ago, reaching $278 million. But since the start of 2022, growth has been dramatically slower, suggesting that the U.S. state markets where it competes may be saturated. To complicate matters further, its profit margin is thin, and it has gotten even thinner during the past three years, dipping into unprofitability for a while in 2023 before recovering.
A big part of the problem is that the price per pound of legal recreational cannabis on the open market in the U.S. is still significantly lower than it was during the lead-up to Green Thumb's first heyday. Today, one pound sells for $1,035, whereas in March 2021, it went for $1,497. Lower selling prices make it harder for commodity producers to realize high margins on their sales, and there isn't anything that Green Thumb can do about it.
Another reason to suspect that it's too late to invest is that it will face more and more pressure on its margins as competition increases in its markets. Its existing and newly opened retail locations are positioned to serve as many as 50% of adults in the U.S., including in high population states like California, Florida, and New York. Those areas will be high priority for other multi-state operators (MSOs) to expand into, assuming they aren't there already.
And Green Thumb currently has no competitive advantage or serious brand loyalty to defend its market share. It might not ever match its products to consumer preferences in a way that keeps people coming back for more. So it's reasonable to expect that its stock won't go on a tear like it did before, even if its base of revenue is vastly larger, as retaining customers will require constant spending on marketing.
Don't count this business out
As you may have recognized, the majority of the challenges Green Thumb is facing right now do not really have very much to do with the company itself. Nor are the problems likely to be permanent in nature.
It remains to be seen whether the long and slower-than-expected recovery of the marijuana market will ever result in it reaching its past heights. In the long run, Green Thumb can probably adapt to the economic conditions in which it operates. But federal cannabis legalization could be a huge boon for this stock because new markets would open as a result. Its competitors are facing the same struggle too, so it isn't as though there's a dramatically better U.S.-based MSO to invest in at the moment.
As for its lack of competitive advantage, building customer loyalty takes time, and the business has to start essentially from scratch in every new state that it enters, as it only enters new markets once it is both legal and lucrative to do so. Once again, its competitors are in the same boat. That's to say there is absolutely nothing stopping it from slowly amassing a collection of popular cannabis brands that people love to use, and it already has a few promising crowd pleasers, like its Dogwalkers pre-rolled joints.
So, is it actually too late to invest in Green Thumb Industries?
No. But as with many investments, you'll need to count patience as being among your virtues if you decide to buy its shares. It's only at the start of the road to realizing its full potential as a steadily profitable and growing business with a group of winning brands, and it might be a handful of years before investors see it issue a dividend or deliver strong share price appreciation performance.
