With wide geographic diversification across the US and a balance sheet loaded and ready, Chicago-based cannabis company Green Thumb Industries (CSE:GTII) has the potential to capitalize on a growing US market, says Russell Stanley, analyst for Echelon Wealth Partners.

In a research coverage initiation on Friday, Stanley rated Green Thumb a “Speculative Buy” with a 12-month target price of C$20.00, representing a projected return of 103 per cent at the time of publication.

Green Thumb is a vertically integrated cannabis company with cultivation, production and retail businesses across eight states, together amounting to a population of 94 million. The company started trading on the CSE on June 13, while the release of its second quarter 2018 results is expected on August 28.

In his launch, Stanley emphasized GTII’s participation in the increasingly attractive US market, its focus on states with high entry barriers (thus limiting direct competition and positioning it to generate strong margins in both wholesale and retail) and, last but not least, Green Thumb’s estimated $60 million in net cash now available to fund its expansion efforts. (All figures in US dollars unless noted otherwise.)

“We believe US operating cannabis companies offer investors compelling valuation opportunities versus Canadian licensed producers, particularly given the decline in perceived regulatory risk since earlier this year,” says Stanley. “US operating cannabis companies currently trade at an approximate 46 per cent multiple discount to Canadian licensed producers (LPs) based on average EV/C2019E EBITDA multiples and consensus estimates. Green Thumb is the second largest US operating cannabis company by market capitalization, which positions it well to benefit from improving investor interest in the US market. “

We believe F2020 is the most relevant year for Green Thumb, as that reflects meaningful contributions from the states that the Company is currently investing in. We value Green Thumb using a 16x EV/2020E EBITDA multiple. As shown below, that supports a 12-month target price of C$20/shr, and our Speculative Buy rating.

The analyst’s revenue model assumes that three of GTII’s current markets (Illinois, Nevada and Maryland) will contribute the vast majority of its revenue in 2018, while Florida, New York, Massachusetts and Pennsylvania are expected to become meaningful contributors in 2019.

Stanley sees GTII producing attributable EBITDA of negative $1.9 million in 2018 on revenue of $60.4 million and EBITDA of $43.3 million on a topline of $183.3 million in 2019. His valuation is based on 16x his EV/2020 EBITDA estimate.