Why Green Thumb Industries Could Be Among the Biggest Winners From Marijuana Rescheduling

There was a lot of hype and excitement around marijuana rescheduling in December, which lifted many pot stocks in the process. While investors were generally bullish on a wide range of marijuana companies due to the executive order President Trump signed to expedite the rescheduling of cannabis from a Schedule I to Schedule III substance, the truth is that not all companies will benefit from the development.

The main benefit will flow through to multi-state operators in the U.S. market today selling cannabis products. And one of the biggest pot producers today that may benefit from marijuana rescheduling is Green Thumb Industries (OTC: GTBIF). Here's why the pot stock could have a lot of upside ahead.

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Green Thumb's CEO expects much more free cash flow

The big win for multi-state operators from cannabis rescheduling is that they will have to pay much less in taxes. That's because Section 280e of the tax code will no longer apply, and it blocks many standard deductions for cannabis companies. With that gone, multi-state operators will generate much more profit and free cash flow.

In a recent interview, Green Thumb's CEO estimated that his company will generate an extra $60 million in free cash flow per year due to the rescheduling, noting that with the change, the business will be taxed based on operating income rather than gross margin. By freeing up additional cash, the company can use that to pursue more growth initiatives to expand its operations.

The company is already one of the better-run cannabis businesses out there today

Today, Green Thumb is already one of the safer cannabis stocks to invest in, as it is generating not only positive cash flow, but its bottom line is also in the black. Over the trailing 12 months, the company's free cash has totaled $154.5 million. Its net income during that stretch has come in at $43.6 million, on revenue of just under $1.2 billion.

Green Thumb is a leading cannabis company in the U.S., and its market capitalization of $1.9 billion is fairly modest, putting the stock at a price-to-sales multiple of just 1.7. For a company with so much growth potential, especially if there is further marijuana reform ahead, that could make it a bargain buy right now. While there is risk and uncertainty when it comes to cannabis (and rescheduling technically still hasn't officially taken place), if you're willing to be patient and hang on for several years, this is a stock that could possess a lot of upside in the long run.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Green Thumb Industries. The Motley Fool has a disclosure policy.