Calculating this one has been a challenge. Even aside from no QoQ data (I have to impute it), there’s optionality strewn about the place.

Much of Green Thumb Industries ($GTII) dealmaking -via financing and acquisitions – contains nested optionality. Naturally, the totality of it is not consolidated. Much of the effort needed for discovery has been an exercise in what I would describe analogously as a ‘search and rescue’ operation, with emphasis on the ‘search’ part. You’ve heard Blue and myself make noises about the general quality and level of disclosure in the MSO’s (multi-state operators).

A lack of segmentation is part of that. As is state/region level reporting. The difficulty I’ve had getting a granular look at how companies fare in the largest legal weed market in the world (California) is representative. And having deals and optionality not consolidated in reporting is as challenging to me as the absence of splits between wholesale and retail revenue is to GoBlue. Often we can get to it…..just simply more effort.

Enough bleating. $GTII’s SBC is relatively stable, the granting of RSU’s is pre-defined, and incremental issues are amortized over 2 years. Its’ orderly, and generally good practice. I think it’s a little rich, but, it’s a subjective viewpoint. Related parties also have a hand on some of the warrants, specifics (as in actual numbers) are difficult to track. I’d count them as compensation as well, if indirect….I haven’t included though. There is a rolling calculation of unrecognized forward SBC that will be amortized:

Warrants have been used both in financing and acquisitions. Some from a modification of a previous loan agreement (called simply enough….’modification warrants’). There’s ‘dispensary mortgage’ warrants (presumeably as inducement from acquisition), and ‘debt’ warrants. Nothing other than fancy names, but the valuation methods presented in the financials are contingent upon the underlying currency denominated within the warrant (I calculate optionality based upon their value, not how they’re accounted for. Impact upon cost of capital is not driven by a given accounting treatment).

The level of the share price is directly correlated to overhang by the existence of super and multiple shares in the capital structure. Unlike $CURA, there is no sunset provision for them at $GTII. They will live on as long as management desires them to. They represent more than 50MM shares, but are un-tradeable, and relatively ‘invisible’.

The reader will note that as share price accretes, so does overhang. In this case, 80% of that overhang is driven by the supers and multiples. The last quarter represented below is at a share price of about $13.60 USD. At the end of the year, it closed at ~=$24.55 USD. Now? It’s at ~=$33.50 USD.

Lookout if/when the three folks who own them decide to cash them in. It’ll represent hundreds of millions of expansion in shareholder equity – for a rather nominal amount of cash. That reader….will be felt right in the cost of capital across the entire organization. At the current share price, that translates to about $9/share.

The lowest level for overhang (visible last March, or Q-2) coincides with the super and multiple strikes being near the money (at a $6 share price). Since then….hoo boy. And since that last fiscal year end, the three executives at the top of this company have issued 27MM shares to themselves via conversion.

I expect overhang will exceed aggregate goodwill and intangibles when the 4th quarter is reported.

Hey, it’s not like they didn’t point this out. $GTII lays it all to readers in black and white…and fully disclosed all along. From page 57 of the December 31, 2019 10-K Form:

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 holds no position in $GTII