Green Thumb Founder Ben Kovler Talks 2020 Success, Future of US Cannabis Space


Chicago-based cannabis firm Green Thumb Industries last week reported impressive 2020 financial results, including 157% revenue growth and nearly 550% adjusted EBITDA growth.

Both revenue ($556 million) and EBITDA ($180 million) beat consensus estimates, however GTI founder Ben Kovler believes things are just getting started.

“We’re still in the early inning of the great American cannabis growth story,” he said during a call with investors and analysts last Thursday.

Indeed, just 15 states currently permit the sale of adult-use cannabis, while 36 states have established medical marijuana laws. The substance is legal in some form across 47 states, and legal sales eclipsed $17.5 billion last year, according to BDSA.

Meanwhile, Virginia is on the verge of becoming the 16th state to legalize adult-use marijuana, while states like New York, Connecticut, and Rhode Island, among others, are looking to follow suit this year.

And at the federal level, the SAFE Banking Act was recently reintroduced in both the House and the Senate, and a trio of top Senate Democrats are leading the charge to legalize.

For Green Thumb, any legislative developments would throw fuel on an already raging fire.

The company completed nearly 4 million transactions in 2020 and posted $177 million in sales during the fourth quarter alone. GTI also had positive net income of $15 million in 2020 and ended the year with $95 million in free cash flow.

“That’s a real business with real momentum,” Kovler told CNBC’s Squawk on the Street last week.

But perhaps the biggest breakthrough for GTI was completing an initial public offering in the U.S. and raising $156 million via the sale of SEC-registered shares to U.S. investors.

“We view the institutional support as a vote of confidence in our proven operating model and a leading indicator of what’s to come for the industry,” Kovler said in a news release.

Green Thumb currently operates in 12 markets — California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania — however its primary focus is on markets east of the Mississippi.

Later this month, it will open its 55th and 56th retail dispensaries in Illinois and Pennsylvania, respectively.

The company also recently struck a deal with popular cannabis-infused beverage maker Cann and will soon begin manufacturing and distributing the California-based beverage maker’s low-dose drinks this Spring.

THCnet caught up with Kovler to learn more about his company’s overall outlook on the U.S. cannabis market, and how he expects the sector to continue to develop in the coming years.

The following interview has been condensed and lightly edited for clarity.

THCnet: Obviously 2020 was a very successful year for Green Thumb, but I’d love to get a bit more color on what you see as the biggest milestones for the company last year.

Ben Kovler: We’re excited and proud of the year we put up. Revenue of $586 million, which is 157% annual year-over-year growth, EBITDA of $180 million, which is 550% growth and pretty remarkable. Over $95 million of free cash flow after tax. Positive GAAP income was another big milestone for us. And 7 cents of GAAP EPS, and $0.11 last quarter. So, when you look at growth stocks, this one sets up extremely well. We are more focused on the business and the economics inside the company to drive shareholder return, but the story is very clean and very simple. We’re excited to be executing against it.

THCnet: As you know, the SAFE Banking Act was reintroduced, and it seems like capital from U.S. investors is starting to shake loose. Can you go a bit deeper on GTI’s S-1, and why it was such a big deal for a U.S. cannabis company to do that?

BK: At the highest level, if institutional investors are going to come into the cannabis space, it is federally illegal. So, things that were in opposition with one another are now finding a way to reconcile. What happened was the SEC declared our S-1 effective. So, we offered shares to U.S. investors, fully liquid, GAAP accounting, compliant and OK’d by the SEC. When any company goes public, they file an S-1, it is declared effective, and then they raise money — usually with a bank. And then it is priced, and the stock starts trading. Ours was a bit unique because we are already trading in Canada, but this is a U.S. IPO, and we did it without a banker so there were no commissions or fees. We sold the first $100 million to one buyer, and then another $56 million to a handful of buyers. For the company, this gives us dry powder to invest at very good returns. And for the industry, this is a leading indicator of capital markets showing the kind of appetite for U.S. cannabis investment that we think is a big, strong appetite because this is about to be an $80 billion industry in several years.

THCnet: $80 billion just here in the U. S.?

BK: Yes. There are 350 million Americans who are going to consume (or do consume) cannabis. The product is going to get better; brands are going to go national, and the relationship with the consumer is going to grow. America is the land of the brand. And we believe that brands born and built in the U.S. become worldwide brands. That’s not to say there aren’t successful international brands, but we think the U.S. is the spot. We’re American.

THCnet: And the $156 million that you raised, what are you primarily using those funds for?

BK: Investing into the business. Capital spend to build production assets, supply and distribution channels and a small amount of dollars with stores in order to service, essentially, markets that are east of the Mississippi. So that’s Illinois, Ohio, Pennsylvania, New Jersey, New York, Connecticut, Massachusetts. All of these markets are growing pretty significantly, and we are building the infrastructure to supply the product to build branded product so that everyone can have Dogwalkers and Dr. Solomon’s. That’s how consumer products work, and they’re the same and consistent everywhere. So that’s where the money is going.

THCnet: And what’s the timeline on that spend?

BK: In 2019, we spent a little under $100 million. In 2020 we spent about $115 million, and we’re going to take that up this year. We continue to accelerate. But it is a long cycle, because there are local approvals, and you have to build large facilities. So, you feed the funnel and continue to expand and grow. While there is opportunity for hundreds of millions of dollars of investment, I can’t spend $100 million tomorrow. It takes a while. These are big facilities, with capital intensive international supply chains. So, there is a cycle to the capex, but we are accelerating it because we see the U.S. demand

THCnet: You brought up several states, including Connecticut, Pennsylvania and New York where you currently operate in the medical market. There is a lot of talk about those markets approving adult-use cannabis this year or in the near future. Are those the key areas where you’ll be deploying capital?

BK: It’s pretty hard to say what the timing is, but they are all going to go. I’m not focused on this year or not. We are focused on where there are 10s of millions of people. So, Pennsylvania has almost 13 million people and Ohio has over 10 people. Connecticut is more like 3 million. Essentially, we make the most educated bets we can with a probability that is in our favor to generate the highest return on capital that is sustainable over time.

THCnet: You didn’t mention California, which is the biggest cannabis market. How much capital do you guys need to effectively compete there, and how important is it to you moving forward?

BK: So, the answers to those questions are different. It is very important. But why would I invest capital where we could lose? I’d rather play at the poker table where we can win. There are good players, and a good game going there, and so we’re around. We’re studying everybody and being strategic about it. But to build the kind of facility in California like we are doing in Pennsylvania or Ohio, would not be as good of a return for shareholders. There’s a ton of supply already there, and there is no supply in places like Ohio.

THCnet: So, are you more focused on building more supply as opposed to investing in some of the other areas of the business?

BK: We create value in the branded consumer products, but there is no product in these states where there are 10s of millions of people. So, we are forced to grow it. If there was a supply chain, whether it was interstate or otherwise, and we could source cannabinoids or isolates, we would. Our edge is on making consumer products and growing really high-quality cannabis. And if we don’t have the supply, we can’t make the product. Heinz Ketchup, Budweiser and Hershey all start with some sort of plant or commodity-based input. And I would love to do that. But there is no weed to buy, to do what I’m doing.

THCnet: How do you expect that dynamic to change over time? When the U.S. is an $80 billion market, are we still looking at companies that are vertically integrated or will MSOs like Green Thumb start to unwind from retail, or growing? How will that play out?

BK: It’s a continued evolution. The one thing that is certain is change. So, we are trying to position the business with optionality in many cases. We’re good if it stays the same, we’re in favor of the SAFE Banking Act, we don’t want 280E, and there are several things that don’t make common sense. We are playing the hand we are dealt, operating compliantly and legally. But there is no way it is going to be the same. It’s not possible.

THCnet: You brought up the SAFE Banking Act. How would something like that, if it passed, alter your business and the entire landscape of cannabis?

BK: Well, the devil is in the details. Access to capital markets, and being able to list on the New York Stock Exchange, for Green Thumb that would be a unique event. Is 280E still going to be around? That would dramatically change the cash flow nature of the business. The cost of capital will dramatically change. We could invest in the business. We’re analyzing the potential changes in the landscape and positioning the business to be most durable for shareholders through that change. It would be a good idea to pass something like the SAFE Act, which adds safety to the industry around cash procedures that are totally nonsensical. But laws are tricky, and things take time, and the federal government is not a first mover.

THCnet: Have you gamed out possible scenarios for federal legalization, whether it occurs this year or sometime in 2024?

BK: Yes. We are looking at the chess board. The game has started. We analyze multiple factors here of what could happen. The secret sauce is not a secret: invest shareholder capital like it is your own for the best possible returns that are the most durable over time. If they legalize tomorrow, what does that mean? If they legalize in a decade, what does that mean? What’s interesting is that you have Mexico legalizing, and to me it doesn’t make a lot of sense for any politician to vote to send jobs out of their state to Mexico, Canada, Uruguay or any other country talking about legalization. There is a great industry here in the U.S. There are a ton of jobs and a ton of revenue to be created in the states. There is a ton opportunity, and ton of social equity and social justice to fix. We’re ready to act and ready to bring product to consumers that want it.

THCnet: There seems to be a growing interest in the beverage segment. You guys recently formed a partnership with Cann. Where do you see cannabis-infused beverages going over the long-term?

BK: It is a form factor that is familiar for Americans. Sparkling beverage has bigger social consumption than alcohol alternatives. Hard seltzer has come in to replace or compete with beer. We think that Americans will choose a Cann over a Budweiser or a White Claw. Now how big of the cannabis category will it be? Well, cannabis is going to go up multiple and we think the sector is going to grow from 1%. We think cannabis on-premise consumption will begin in the U.S., and how and where that takes shape is part of it. Beverage, obviously, will be a favorable form factor for on-premise versus sitting at a table and sharing a gummy. So we are building optionality into the business in many ways.

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