As we have often said here at The Green Fund, the cannabis landscape is continually changing, and many of the companies that exist today could very well cease to exist over the next few years. Additionally, some of the biggest players may still be in an embryonic phase.
As such, investors would be wise to keep their eyes on the future, and pay attention to the broader trajectory of cannabis as opposed to just the here and now.
Comparatively, cannabis remains federally illegal in the U.S., which has fragmented the industry, leading to each state having its own unique laws and regulations when it comes to cannabis. Moreover, U.S. companies cannot carry cannabis across state lines, meaning that if companies want to expand beyond operating in just one state, they need to have a vertically-integrated supply chain and act in accordance with the laws of every state that they choose to operate within. And if all of that wasn’t difficult enough, the cannabis industry, in many ways, has been excluded from accessing financial institutions, due again to the federal illegality of the plant. This makes it much harder for weed companies in the U.S. to raise capital.
Because each state has a different set of laws and regulations, a multi-state cannabis business must take the time to acquaint themselves with the local rules. I typically refer my clients to local specialists in each of the areas they plan to operate, as the specific regulations are often very nuanced and specific to each area, and then we plan a comprehensive plan that addresses all the individual rules.
However, over the long term, it’s virtually indisputable that the United States is where the biggest gains will be made, with an estimated cannabis market of roughly USD $30 billion by 2025. And while experts often quibble about the specific dates, there is general acknowledgment marijuana will indeed be made federally legal in the U.S. in the coming years.
With federal U.S. cannabis legalization in mind, you’ll want to keep an eye on the companies that are positioning themselves for a nationwide takeover; the companies that are operating across multiple states already, despite the ongoing difficulties involved with doing so.
These are the Multi-State Operators (MSOs) of the cannabis industry and here are three that we think you should pay attention to.
1. Green Thumb Industries (CSE:GTII)
Founded in 2014, Green Thumb Industries (CSE: GTII) owns and operates a series of cannabis stores throughout the United States called Rise™ and Essence. GTI has 13 manufacturing facilities, 46 stores open across the U.S, and enough licenses for a total of 96 retail locations and operations across the country.
Green Thumb’s family of consumer brands is produced, distributed, and available in retail locations in nine states: California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, and Pennsylvania, and Green Thumb currently employs over 1,700 people.
In order to see the trajectory of GTI, one only needs to look at the company’s most recent quarterly results for the period ending March 31st.
Firstly, it should be noted that for this most recent quarter, GTI operated at a net loss of $4.2 million, however, this is a significant improvement over the losses felt in the final quarter of 2019, which amounted to $14.1 million or ($0.07) per basic and diluted share.
Additionally, GTI has been reporting a positive EBITDA for the past three quarters, with the most recent quarter seeing an EBITDA of $20.3 million as compared with $7.8 million in Q4 2019. Meanwhile, GTI is making strong gains in revenue, which increased 35% quarter-over-quarter and 268% year-over-year. And this is all occurring against a backdrop of rapid expansion of GTI’s retail stores, with three stores opened during the quarter, and two more subsequent to the quarters-end.
Green Thumb Industries is expanding throughout the U.S., embedding itself into flourishing new markets like Illinois, and moving toward profitability as it does so. It’s only a matter of time before this company is in the green, at which stage it may have cemented its position as one of the key players in the U.S. cannabis market.
And don’t worry about the company’s finances; as of March 31, 2020, GTI’s current assets were $140.8 million, including cash and cash equivalents of $71.5 million.
2. Trulieve (CSE:TRUL)
Trulieve (CSE: TRUL) is a vertically integrated “seed-to-sale” company that operates throughout California, Masschusetts, Connecticut, and, most notably, Florida. Trulieve boasts 50 stores in total — 47 of which are positioned across the Sunshine State — giving Trulieve a 54% lions share of the Florida Market.
Thanks to the company’s almost 1.8 million square feet of cultivation facilities, Trulieve cultivates and produces all of its products in-house and distributes those products to Trulieve-branded stores (dispensaries), with over 360+ SKUs in the company’s portfolio.
One of Trulieve’s biggest strengths is the company’s focus on Florida’s medicinal marijuana market, which has been booming amid COVID-19. Evidently, medical cannabis markets are less volatile than their recreational counterparts, and this means that Trulieve can expect to see more consistent results than some of its peers.
This proved to be the case in the most recent quarter ending March 31st, during which Trulieve achieved a record revenue of $96.1 million, up 21% from the previous quarter, as well as an adjusted EBITDA of $49.4 million.
Furthermore, Trulieve is currently generating a profit, as the company brought in US$14 million in net income for the quarter, with US$100.8 million cash in the bank.
Trulieve’s success within the Florida market demonstrates that the company has a clear capacity to dominate cannabis markets, giving us hope that should the company seek to expand its operations throughout California or Massachusetts, it can do so successfully. With plenty of cash in the bank, growing revenues and current profitability, Trulieve is in a very good position moving forward.
3. Cresco Labs (CSE:CL)
Cresco Labs, Inc. (CSE:CL) is a vertically-integrated cannabis and medical marijuana company based in Chicago, Illinois, with current retail operations in 9 states, including Illinois, California, Ohio, New York, Massachusetts, Pennsylvania, and Michigan. At the beginning of this year, the company gained access to California via an all-share acquisition of Origin House, which gave Cresco Labs 575 dispensaries across the Golde state.
The company has 29 retail licenses, 15 of its branded Sunnyside* Dispensaries across the U.S., and CL products sold within 700 dispensaries across the country.
Cresco Labs has a particular focus on Illinois, with 8 Sunnyside* dispensaries situated within the state, which is a market that some analysts predict will grow as large as Colorado. Should Cresco Labs own the dominant dispensary brand in Illinois, this would position the company very nicely to reap enormous rewards.
Cresco Labs’ revenue for the first quarter of 2020 was $66.4 million, representing an increase of 60% over the previous quarters’ revenue, which the company attributes to “increased cultivation and retail efficiency in Illinois and Pennsylvania, along with operational improvements in California.”
Admittedly, the company isn’t in as good a shape as GTII or TRUL, as CL ran at a loss of $13.4 million, with $68.6 million in cash left in the bank. This gives the company roughly 5.1 quarters of cash runway left. Though while the company isn’t yet profitable, the $13 million loss for CL was an improvement over the prior fourth-quarter net loss of US$45.2 million, suggesting that Cresco Labs is moving in the right direction. Additionally, the company has access to $100M in future funding thanks to a debt financing deal with investors, meaning CL is well-oiled moving toward a profitable future.
Yes or No to MSO’s?
Cannabis Multi-State Operators have to jump through more legislative hurdles than your average business owner and face many challenges as a result. However, what we’re currently seeing are the early days of an arduous land grab, for what will eventually become a booming cannabis empire when cannabis becomes federally legalized in the U.S.
The companies that can successfully and profitably establish their roots firmly across the United States in these early years, may embed themselves into this future market and reap what they have sowed. These will be the MSO’s, who are building national brand awareness and trust among consumers, as well as surviving in a tumultuous environment of COVID-19 regulations, a precipitously declining pot stock market, and a disjointed legal framework from state-to-state.
And with every passing week, the chains continue to be loosened for the cannabis industry, as new studies are performed, and as cannabis-related bills become more frequent within the House of Representatives and the Senate, including the most recent revival of the SAFE Banking Act. Moreover, efforts to push for cannabis legalization are becoming louder and more frequent, and in the coming 12 months, we will certainly see the number of U.S. states that have legalized the plant grow beyond 11.
As the doors open up for the cannabis community, things will get much brighter for the MSOs.