GTII’s earning release.

What I Said last Q:

Pluses

Revenue increase 10%

Nice cash balance post Q end, with very reasonable debt and no major maturities in the next year.

EBITDA growth continues

SGA reductions as % of sales increased minorly after seven straight QoQ declines

Net Operating Profit increases for 5^th QoQ in absolute terms and  as % of sales.

Minuses

Growth increases has slowed each of last two Q’s.

Quarterly retail revenue growth for same store both YoY and QoQ is slowing

Revenue from GTII own branded products in their stores declined albeit minimally

This Q:

Pluses

Revenue increase 14% with Retail +15% (growth accelerated QoQ) and Wholesale +12%

Nice cash balance post Q end, with very reasonable debt and no major maturities in the next year.

EBITDA growth continues

Net Operating Profit increases for 6^th QoQ in absolute terms

Minuses

Wholesale revenue increase slowed as % and in $ amount QoQ… really nit picking here.

Gross Margin reduced 1.6% to 55.4%, but second best in last four Q’s

Open up the fins and MDA and follow along

Income Statement Drivers & Breakeven Sales: Trend

Table 1: Revenue by Segment

Retail in 11 States: California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, Pennsylvania.

CPG Only in 1 States: Colorado

Store count: 58 +2 for Q:  IL 9, NJ 2, CA 2, PA 13, MD 3, NV 7, OH 5, CT 3, FL 7, and MA 3 (+2 QoQ). 

Manufacturing facilities:  13 no change QoQ

Revenue per Average Store Opened in Q:

Sales growth continued its climb with QoQ increase of +14% to $222 million.  The +$27 million increase was the 2^nd highest in the five Qs under review, only not surpassing September 31, 2020 revenue increase of +$37.5 million.  Growth percentage had slowed each of last prior Q’s but accelerated this Q.

Retail sales grew 15% QoQ by $20 million to $150 million.  I note their five new stores were opened late in the prior Q and had a full Q this Q, plus two new stores in Massachusetts this Q.

Retail of other companies’ products accounted for +$13.7 million of that growth, as GTII products in GTII stores reversed last Q’s decrease $0.6 million, and increased by $6.5 million to $46 million.

The GTII own product sales mix was stable at 31% this Q. Retail of others merchandise accounted for 69% of Retail sales, also stable QoQ.

Revenue per GTII store increased 8% to $2.6 million for the Q.  After a slowing in sequential QoQ store sales last Q to +2%, this Q same stores opened for all of the prior Q improved +8%.  YoY same store sales declined -1% to 34%.

This will be an interesting metric to follow going forward.  As it will likely show inflection as saturation is reached (likely not for a while for some states), but conversely the wholesale revenue should increase as saturation of retail means more competing stores to wholesale too.

Their CPG brands grew 13% QoQ and their Wholesale to other companies’ stores grew 12% QoQ or $7.4 million to $72 million. Flow through to their own stores increased +16% or $6.3 million, as mentioned above, to $46.1 million.

Retail Sales: Trend and Peer

A steady upward trend in their retail store sales.

They trail only Trulieve and Cura in retail revenue. However, CURA needed 107 stores to get their $222 million ($2.1 million/store), Trulieve had 91 to get their June 30, 2021 figure ($2.4 million/store), while GTII is at 58 stores ($2.6 million/store). GTII’s SGA is lower as % of sales, as they operate much fewer stores than their competitors, and SGA expenses are below the GM line.

Wholesale Sales: Trend and Peer

Wholesale increases have slowed QoQ for the last three Qs.  They need the new Illinois licensed stores to open to absorb more sales. The lottery winners for those stores were announced last week.

Annualized Sales per PPE + Goodwill+ Intangibles:

This is my attempt to try and normalize those companies growing organically and those acquiring operations.  I have added PPE + ROU + G/I and divided Annualized Sales by that figure to determine who is being efficient with their long-term asset capital.

This is a metric that we are starting to see separation.  TRUL leads followed by GTII and CL. TER and HARV slots next. Cura is a step further down along with CWEB, which is non-THC.  

Strong trend line with GTII, as they had no major M&A in F2020. QoQ they increased from $0.69 to $0.72 as they continue a solid uptrend in converting PPE and acquisitions into sales.

Income Statement Drivers & Breakeven Sales: Peer

Second to Cura on Sales.  

Gross Margin: Trend & Peer

GM reduced to 55% QoQ and remains second best in past five Qs.  No narrative is given in MDA on any QoQ. On CC they indicate the ramp of CPG has costs ahead of revenue (grow, harvest, cure, ship, sell). Given sales mix was very stable I cannot offer much narrative.

Absolute GM was $122 million up from $111 million +$11 million from last Q.

Annualized Gross Margin per PPE + Goodwill+ Intangibles:

This is my attempt to try and normalize those companies growing organically and those acquiring operations.  I have added PPE + ROU + G/I and divided Annualized Gross Margin by that figure to determine who is being efficient with their long-term asset capital.

GTII improved to $0.40 from $0.39 QoQ, despite the backslide in GM%.  Solid trend line meaning… they are converting PPE + ROU and acquisitions into more GM per dollar of PPE+G/I.

GTII moved into third place last Q a long way back of TRUL (who has not grown much through acquisition until recently) and TER, whom does not have nearly the GTII footprint. CWEB remains in third but are not THC touching, and Cura lags (common theme) quite far back from TRUL, GTII, and CL.

Gross Margin: USA Peer

This peer group is led by the heavy leaning single state operator from “Fortress Florida” TRUL and then CWEB on non-THC side.

GTII is sandwiched between TER and ACRG in 4^th place.

Gross Margin: North American Peer

The first 10 slots are all US companies, as they get to generate retail margins versus wholesale in Canada.  This difference will lead to different scaling issues with SGA, as we have seen with the scaling of Canadian retailers.  However, US Retailers are generating far more sales than Cdn per store locations.

As a comparison to Canada, Village Farms had a 40% GM% in Canada, which has national pricing, is highly competitive and does not benefit from verticality.  ACRG, the only MSO to show retail and wholesale GM, generates a 50% retail GM, similar to CL two Illinois stores that are partially owned.

That GTII, who only has 55% stores in favorable margin markets, is at 55% GM% means they are either really doing well on wholesale GM% (as it os 1/3^rd of overall sales) and/or they are also above 50% on retail GM%.

SGA & SBC as % of Sales: Trend

What I said for many Q’s: They lumped SGA, SBC and depreciation under one line item without a schedule.  Aaargh!!! FFS,  I have to use a freaking earnings release and MDA to break down SGA. 

Note: I have taken full depreciation from SGA as there is no CoGS depreciation and no non production assets depreciation disclosure/segmentation.

A two Q bump interupts a very good trend line.

SGA, with five new stores opened late in piror Q and two new stores this Q, increased $11 million QoQ.   SGA seems to be GTII’s “secret sauce”.  SGA as % of sales increased nominally from 21% to 23% following SEVEN QoQ decreases as % of sales which ended in March 31, 2021 Q.

SBC was reported at $5.6 million an increase of $1.6 million QoQ.  As the founders have super shares the SBC is minor.

Depreciation was stable at $15 million.

Total OPEX as % of sales was 32% of sales an increase from 31% last Q, halting a five QoQ decrease.  Opex increased $12 million QoQ in absolute terms.

SGA & SBC as % of Sales: Peer

GTII is the lowest in aggregate SGA and lowest aggregate SGA + SBC, with AYR in second presently.  This is where GTII is outperforming the other roll ups by a considerable margin.  

+Net Operating Profit Sales Breakeven divided by Current Q Sales: USA Peer

GTII needs only 59% of existing sales at present GM% and OPEX to generate a +NOP.

GTII was +$51 million NOP positive this Q versus +$52 million last Q, halting the streak of growing NOP at five Qs.  The increase of $12 million in GM was offset with increase in Opex of $13 being the reason.

Other Income (Expenses) aggregate was +$2.4 million versus -$9.2 million last Q.

• Other income swung from -$5.2 million to +$6.8 million this Q.  This is all fair value adjustments on warrants driven as stock price retreated in the Q.
• Interest expense was up slightly by $0.6 million at negative $4.7 million.

Income tax of $30 million rounds out the expenses, flat to last Q. That 280e tax is a burden.

This leads to a Net Income of +$22 million versus +$10 million last Q. Four positive Net income in a row.

+Net Operating Profit Sales Breakeven divided by Current Q Sales: North American Peer

Again, MSO are dominating the top part of this graph.  Where MSO’s could start to falter versus Cdn LP’s is opening up more retail stores will add OPEX and will need capital to roll out new stores.  Whereas the Cdn LP’s should be fully built out on cultivation and reap more GM$’s without the need for more capital IF THEY CAN SELL THROUGH and IF they are not burning through OPEX. (Two big “IFs” in there).

EBITDA: Trend and Peer

They have “transaction costs and other non-operating costs” of $7.6 million not broken out in income statement. I would lean into allowing transaction costs (Liberty Compasiion related likely) but the split with “non-operating costs” is not disclosed, so not sure what they are.

EBITDA increased by $1.0 million to $72 million, the increase in sales with stable GM was the driver.  They trail Trulieve and CURA in this metric.

With Q interest at $5 million and Current Portion of Leases and Loans of $10 million they have very good debt serviceability. With existing EBITDA, they could take on a sizeable chunk of traditional debt.

Annualized Adjusted EBITDA to (PPE + ROU + Goodwill and Intangibles)

We have added this new metric to now look at who is being the most efficient with PPE + ROU + G/I based on Annualized EBITDA.

This is our new metric that flows from the Annualized Sales and Annualized Gross Margin. GTII is behind TRUL and TER in this measure.  Notice the step down after GTII to CL at $0.14 (still to report) and CURA $0.14.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our new metric from last Q.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

GTII increased $1.3 million in this metric QoQ to $36.9 million.  A lot of effort for that level of gain.

This shows the relative stark discrepancy between TRUL, VRNO and GTII well north of CURA and CL.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

GTII in third place.  VRNO in first has a sizeable footprint as well.  TRUL will get there with HARV acquisition, and it will be interesting to see where they end up after loading the G/I.

GTII actually slid backwards from 18% to 17% in this metric QoQ.

+EBITDA Sales Breakeven divided by Current Q Sales: USA Peer

At 42% of current sales levels at current GM% and Cash OPEX$’s GTII could generate a +EBITDA.  

+EBITDA Sales Breakeven divided by Current Q Sales: North American Peer

Balance Sheet Items of Note:

Cash is at $359 million an increase of $83 million QoQ this is largely from equity raised plus $217 million during Q  in debt. The latter was in part used to retire $105 million senior secured notes that were due in May 2023.

“Waterfall” Trend

US GAAP. 

GTII is actually pretty thin on inventory as they have $81 million (+$9 million) on hand versus $99 million in CoGS last Q.  They do operate in some states that allow wholesale, so they can supplement their inventory from those suppliers.  A less than 1:1 Inventory to CoGS ratio is very tight and efficient but could stymie growth.

FG delta strengthened nominally this Q +$3.6 million to $35 million. 

“Waterfall” Peer

GTII has the leanest inventory to sales as compared to peers.

PPE increased $40 million to $241 million, while Right of Use Assets increased $15 million to $159 million.

Investments increased $13 million to $42 million, as their investments had a fair value adjustment added.

Investment in Associates increased $18 million to $32 million as they increased their interest in a privately held company, and as they now are considered to exert a significant influence (board seat) it was moved to Investments in Associates from Investments.

Intangibles and Goodwill increased by $15 million and $40 million to $411 million and $423 million, respectively. This was from the acquisition of Liberty Compassion in MA.

A/P and accrued increased to an aggregate $88 million +$25 million QoQ, $30 million in income tax payable -$30 million QoQ to $0.5 million as the tax man got paid.

Notes payable increased by $97 million with the debt raise paying out the previous debt and is now $197 million.

Share capital increase $79 million.

What I said last Q:

This was another progress Q, albeit progress is slowing. 

The Retail store quarterly YOY increases and the QoQ same store figures are showing a slowing of acceleration.  GTII brand sales in their own stores backed up QoQ. 

SGA is still industry leading.   

They have +$380 million in cash after post Q debt raise with no major debt maturities or obligations in the short term. I expect them to be on the prowl for assets in Michigan and Arizona, two adult use states with good population bases that they are not presently in.

This Q:

Progress is back to an upper case “P”, with sales increasing 14%, which is what we were loosely eyeballing the markets that report. 

Nice to see GTII products in their own stores re-ramped, as that was one of the only nits from last Q.

They are well capitalized with ample cash and low debt maturities and current obligations.

The market responded favorably to the earnings +5.5% as I type, but the market did take a similar amount off them yesterday.

Why is GTII reacting differently to their peers? Less of a retail footprint, which was put (silently) in the cross hairs in the CAOA draft bill would be my guess, coupled with nice margins and less exposure to Florida (which is a great market under current structure but will be a hard pivot if adult use and interstate came into the picture).

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author has a position in GTII and will not start nor divest in the next five days.