Key Points

  • Green Thumb continues generating profits while many rivals struggle.

  • Strong cash flow supports disciplined share repurchases.

  • A healthy balance sheet provides valuable financial flexibility.

  • 10 stocks we like better than Green Thumb Industries ›

The cannabis industry has taught investors a painful lesson over the past five years: Revenue growth means very little if a company can't generate cash. Dozens of operators expanded too quickly, took on excessive debt, or repeatedly diluted shareholders to stay afloat.

Green Thumb Industries (OTC: GTBIF) largely avoided those mistakes. And that's why the company has earned a reputation as one of the cannabis sector's best-run companies. Its Q1 results reinforced that idea.

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Revenue increased 7.4% year over year to $300.2 million, while the company generated $76 million in operating cash flow, produced $93.5 million in normalized EBITDA (earnings before interest, taxes, depreciation, and amortization), and remained profitable with generally accepted accounting principles (GAAP) net income of $15.4 million.

In the cannabis industry, this kind of solid performance isn't the norm. So does that make Green Thumb stock a buy now?

Financially strong

Green Thumb is also in a position of financial strength. The company ended Q1 with approximately $344.5 million in cash and cash equivalents and $289.9 million in total debt. And rather than raising capital through new share issuances, management has actually been repurchasing stock.

During the first quarter, Green Thumb repurchased roughly 6 million shares for $33.3 million. After quarter-end, it bought another 7.4 million shares, bringing total repurchases this year to nearly $78 million. That's not trivial.

With that kind of enthusiasm, it's safe to assume that management believes the stock is undervalued and, perhaps more importantly, that the business generates enough cash to reward shareholders without sacrificing future growth.

Profitability and cash flow

The operating business also continues to improve. Green Thumb now operates more than 110 Rise dispensaries across the United States while maintaining exposure to both medical and adult-use cannabis markets. The company continues expanding selectively, including new opportunities in Minnesota and Texas, rather than chasing growth at any cost. This is what got a lot of other cannabis companies in hot water over the years.

Of course, the cannabis industry still faces challenges. Federal legalization remains uncertain, Section 280E continues to create an extremely high tax burden, and pricing pressure remains in several mature state markets. That said, Green Thumb has shown it can succeed without relying on favorable legislation by building a profitable business on today's rules, not tomorrow's hopes.

Now, could other cannabis stocks produce bigger returns if federal reform accelerates? Absolutely. Smaller operators often offer more upside because they carry more risk. But Green Thumb is different.

The company's appeal isn't that it will necessarily be the fastest grower. It's that it has already demonstrated something many cannabis businesses still haven't: an ability to consistently generate profits and produce meaningful cash flow. In an industry where investors have spent years waiting for the fundamentals to catch up with the hype, Green Thumb may simply be the safest bet on the board.

Should you buy stock in Green Thumb Industries right now?

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Jeff Siegel has no position in any of the stocks mentioned. The Motley Fool recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.