Needham Names Green Thumb Industries, Ayr Strategies As 2021 Top Picks

This month, Needham & Company released a 2021 outlook wherein they named Ayr Strategies (CSE: AYR.A) and Green Thumb Industries (CSE: GTII) as their top picks for 2021.

Matt McGinly, Needham’s analyst, currently has a US$28 (C$35.64) 12-month price target on Ayr Strategies. This compares to the C$44.25 average price target, which has risen from C$33.50 in the last month. His current Green Thumb price target is C$39, while the average analyst price target is C$36.92, up slightly since last month.

McGinly says that Green Thumb has one of the best footprints for growth given that it currently has exposure to Illinois, Pennsylvania, New Jersey, New York and Connecticut and believes that they can reach scale in most of its markets overtime.

McGinly says that his big picture expectations for 2021 will be, “Strong topline growth and margin expansion is likely to substantially improve FCF generation in ’21.” Additionally, the capital allocations made in 2021 will “provide the foundation for continued growth in ’22 and ’23,” specifically for NY, CT, and NJ. They expect that is where the firms capital expenditures will be focused.

McGinly also gives investors two key things to watch for in 2021. The first is that McGinly warns that dispensary growth is likely to slow, and additional cultivation will be limited to the first half of 2021. He says, “GTI is nearing its dispensary cap limits in IL and PA and has the ability to add 2 more locations in each state.”

He anticipates that most of the growth will come from same store sales, productivity increases in Green Thumb’s markets, and increasing their yields and efficiency. He also warns that growth in wholesale revenue might be muted until their Ohio cultivation comes online during the second half of the quarter.

The second thing McGinly is watching for during 2021 would be Green Thumb controlling their expenses while increasing their gross margin. He writes, “GTI has been outstanding at managing operating expense with a minimal increase in G&A dollars in ’20 despite strong topline growth.” He expects growth in gross margin and expects EBITDA margin to grow from 32% to the low 40% in 2021.

Onto Ayr Strategies, McGinly says that their operations are best in class and “execution amid COVID disruption was remarkable.” It should be mentioned that this note was presented on December 17th, a week or so before Ayr Strategies announced the acquisition of Liberty Health and entered New Jersey. He also mentions that Ayr Strategies trades at an EV/EBITDA multiple of 8.3x versus their peer group of 17.3x. He says, “We feel confident in execution, and believe this multiple gap will narrow.”

For McGinly’s big picture expectations for 2021, he says, “Acquisition integration and facility build-out in three new markets (AZ, OH, and PA) will likely be the primary focus area in ’21.” He believes that Arizona, Ohio and Pennsylvania will be crucial long term growth drivers and expects roughly two thirds of the revenue to come from Nevada and Massachusetts.

The first key thing McGinly says that investors should watch for in 2021 would be all the pending acquisition’s closing. It’s estimated that Arizona, Ohio and Pennsylvania will likely account for 60% of their revenue growth in 2021 and, “provide scalable foundations for growth in ’22 and beyond.” (Note, this is before the Florida and New Jersey acquisitions)

The second key thing McGinly says that investors should watch for in 2021 is adult-use in Massachusetts. He expects that in the first half of 2021, Ayr Strategies will open their Somerville location, while in the second half of the year the other two locations will open. He writes, “While all 3 locations are likely to be high volume units given their location in the Boston metro area, we would expect the location on Boylston Street to be significantly higher volume.”

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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