The second largest publicly traded cannabis company in the world by market cap, Green Thumb Industries, reached a new milestone in 2022: crossing the $1-billion mark in revenue, representing 14% year-over-year growth.
Other highlights from the Chicago-based multistate operator’s full year report released Feb. 28 included $159 million in cash flow from operations and a generally accepted accounting principles (GAAP) net income of $12 million. The fourth quarter and full 2022 financial report can be viewed here.
The 10-figure milestone for revenue came as the cannabis industry—like many others—faced an inflationary environment that affected consumers’ pocketbooks, high interest rates that further squeezed access to capital, and concerns of a recession, Green Thumb CEO and Chairman Ben Kovler said in a conference call with shareholders on Tuesday.
“I also want to point out that concerns around price compression in our industry are very real,” he said. “The days of fat margins and easy money in cannabis are waning. As people digest punitive tax rates and the high cost of capital, the dollars run out and margins slip. We are in the midst of a washout that will leave the industry with fewer operators, not more. This is ironic, as politicians and operators are talking about including more folks, not less.”
As Section 280E of the U.S. tax code continues to target cannabis businesses by depriving them of the same deductions and credits on expenses that are offered to other American businesses, there is an inadequate cash flow for “the marginal player,” Kovler said.
And the cash line-item is key at Green Thumb, where company executives believe cash flow generation and balance sheet management are critical components of long-term success. Driven by the $159 million in cash flow from operations, the company ended 2022 with $178 million in cash on hand.
“Cash is king at Green Thumb,” Kovler said. “It guides every decision we make and every dollar we spend. Given no meaningful federal relief on 280E and banking restrictions, having a strong balance sheet is absolutely critical to executing our growth strategy and creating sustainable value for our stakeholders.”
Since the beginning of 2020, Green Thumb has paid more than $340 million in state and federal income taxes, he said.
In the company’s home state of Illinois, where adult-use retailers have recorded more than $3.2 billion in cannabis sales since the beginning of 2020, according to the state’s Department of Financial and Professional Regulation, tax revenue generated from cannabis has surpassed the $1-billion mark. Furthermore, Gov. JB Pritzker announced $445 million in cannabis tax revenue was provided to the state in fiscal 2022 alone.
“Yet our business and new equity start-ups in Illinois cannot deduct dispensary employee wages or dispensary rent on their Illinois tax return—a solid double-dip by the state,” Kovler said. “The U.S. cannabis industry reached $26 billion in 2022. That is tremendous growth from virtually zero a decade ago. This kind of growth attracts a lot of prospectors and get-rich-quick hopefuls. For a variety of reasons, these folks will get caught and eaten by the bear.”
But certain headwinds are often out of a singular business’s direct control.
At Green Thumb, company executives expressed their continued focus on what they do have control over during Tuesday’s conference call, from managing capital to studying consumer trends and producing the best products in their wheelhouse—notably flower, prerolls and edibles—to put on the market.
Anthony Georgiadis, the company’s president, talked about Green Thumb’s 2022 consumer packaged goods capital expansion projects in Florida, Maryland, New Jersey, Ohio and Pennsylvania, as well as launching adult-use sales in Rhode Island.
Still, price compression and inflationary battles combined with a global supply chain crunch that drove up both capital investment costs as well as operating costs made for a tough year despite a “respectable” financial performance, he said.
“And we got left at the altar by our friends in Washington on fundamental basic banking reform,” Georgiadis said, referencing an unsuccessful push by federal lawmakers in D.C. to pass the SAFE Banking Act during the lame-duck session in November and December.
“At the same time, not all is doom and gloom,” he said. “We have a number of positive catalysts that should allow us to continue to grow revenue and generate healthy cash flows, even if various fundamentals in many of our markets don’t improve.”
While Green Thumb anticipates the macroeconomic and consumer challenges of 2022 will “remain with us for a while,” Georgiadis said, the company plans to continue opening additional retail facilities in Florida, Minnesota, Nevada, Pennsylvania and Virginia, and looks ahead to continued momentum in newer markets as well as a pending adult-use launch in Maryland.
In order to “continue to thrive” moving forward, Georgiadis said Green Thumb will:
- continue to closely manage its balance sheet;
- maintain strict discipline on all capital spending and operating expense investments;
- operate the business with a focus on cash flow generation above all else;
- improve operational efficiency, especially on the CPG side of the business; and
- continue to build a strong team.
Specifically in the fourth quarter of 2022, Green Thumb reported $259 million in revenue, a 6.4% increase over the fourth quarter of 2021.
The company’s year-over-year revenue increases were primarily driven by adult-use sales in New Jersey, which commenced in April 2022, and revenue generated from acquisitions made throughout 2021, Green Thumb Chief Financial Officer Matt Faulkner said.
“Other key contributors to our year-over-year [fourth quarter] performance include the expanded distribution of Green Thumb’s branded products, three new store openings and increased traffic in the company’s 77 open and operating retail stores,” he said.
Overall, Green Thumb’s retail revenue increased 14.2% versus the fourth quarter of 2021, and 24.1% for the full year, despite many legacy markets—like Nevada—experiencing double-digit dips in their state retail markets in 2022.
Kovler said Green Thumb remains in “good shape” to weather the macroturbulence by paying attention to the fundamentals, studying consumer habits and practicing common sense while running a sustainable business.
“What does worry me is the dimming promise for fresh participation in the industry, especially for Black and Brown entrepreneurs,” Kovler said, adding that social equity licensees are often left “pretty helpless” in an industry that has severely restricted access to capital.
“We believe everyone would benefit from a solution to these problems from the federal government,” he said. “Consumers would have more buying options, a new cohort of entrepreneurs would emerge, communities would thrive from new business formations, and existing operators could expand product distribution.”
With roughly nine out of 10 Americans favoring some form of cannabis legalization, Kovler said the best way to create change is to drive more people to vote.