The year has kicked off in grand style, with most of the cannabis stocks showing strength as the industry looks set to awaken from the nightmare that was 2019.
In the US, key states have reiterated their desire and ambition to legalise for adult-use in 2020, while States that have already lifted the prohibition of cannabis (such as California, Nevada and Massachusetts) should contribute significantly to industry growth this year.
In Canada, the legalisation of edibles and extracts should be a driving catalyst that delivers strong growth in an industry that has been underwhelming at best to date. Expect better product mix to be available both online and in the ever-increasing number of brick and mortar retail outlets.
So far, January has been a bumper month, with some key events and catalysts providing the spark that should ignite the industry.
Illinois kicks off
2020 kicked off the year with the 11th US State opening its doors to recreational cannabis, and from all accounts, it has been a roaring success.
"Pot purchasers spent nearly $20 million on recreational weed in the first 12 days of sales in Illinois". – Illinois State Regulators
Amazingly, given the level of recreational sales seen to date, it makes Illinois potentially the second-largest recreational cannabis state behind only California. There have been queues around almost every corner of almost every licensed dispensary across the state as consumers have come out in droves to take advantage of the lifting of prohibition.
Until this year, it was Oregon that held the record for the greatest number of sales in the first two weeks. Not only has Illinois beaten this mark ($11 million) by an additional million, they have done it with only 40 stores. Oregon had around 270 at the time of legalisation! Pretty cool.
The downside to such rampant demand is that many retailers have run out of stock, and some have even had to stop selling to recreational customers in order to preserve their medicinal cannabis levels (as the state requires them to have a minimum 30 days cover for every medicinal patient on their books). This will change as new facilities come online, but the fact that recreational sales have been that strong is a great sign for the industry and its future.
The first mega-merger off the rank
2019 was characterised by massive mega-mergers like MedMen's acquisition of PharmaCann, Cresco Labs purchase of Origin House, and Curaleaf's purchase of Cura Partners. So far, MedMen and PharmaCann are off, and Curaleaf/Cura Partners will with the Department of Justice. However, Cresco Labs announced on January 8 that the acquisition was officially complete.
The deal gives Chicago-based Cresco Labs access to Origin Houses' California-leading distribution network, and in doing so, also gives Cresco access to the collection of Origin's House Brands that they can now distribute across the US in their network of dispensaries.
The deal is important in that it's the first one the DOJ has given its stamp of approval too and lays the foundation for further consolidation in the US in 20202 (which we have written about here).
New States on the horizon
On the 9th January, Governor Andrew Cuomo reiterated his plans to try and legalise recreational cannabis in New York in 2020. This will be very good for many of the MSO's that have licenses in New York and would be ideally situated to take advantage of the onrush of adult-use.
For decades, communities of colour were disproportionately affected by the unequal enforcement of marijuana laws. Let's legalise adult use marijuana.– New York Governor Andrew Cuomo
The bill is very much driven by issues surrounding the unequal enforcement of the War on Drugs against certain underprivileged communities of colour. It's estimated that a legalised adult-use program in New York could generate around $300 million in state taxes every year, which would go some way to plugging New York's $6 billion budget gap.
New Jersey also looks set to legalise recreational cannabis this year, as the East Coast is driven by legalisation in Massachusetts, Michigan and Illinois in 2019. Based on the success of Illinois' recreational sales in the opening weeks, this bodes very well for the cannabis industry, and legislative efforts to eventually legalised cannabis at the Federal level.
Ontario Cannabis Store 2.0
This week saw the launch of Legalisation 2.0 edibles and extracts products being sold through the Ontario Cannabis Store. Sales have been very strong in the opening days as many for the vape products have completely sold out. This is another clear indication that these are the products and form factors most in-demand in the adult-use market.
"We know that the retail store network launch of these products was tremendously successful and we're now offering the same products to our e-commerce customers," said Cal Bricker, President and CEO of the OCS.
These numbers, when combined with additional retail store openings in Ontario and Alberta in the first half of the year will drive the Canadian cannabis industry's revenue, and – hopefully – finally deliver on the potential and scale analysts expected.
And there you have it, clear signs that 2020 could be the cannabis industry's breakout year. We have recently written about some of the trends we expect to see in 2020, and the above has clearly reiterated this potential.
This could be one of the best investing opportunities of 2020
Legislative changes are blowing through the US, and with it, an ever-increasing number of states legalising cannabis for recreational use.
With the success seen in Illinois, which legalised for adult-use on January 1 and saw products moving off the shelf at an unprecedented rate, this company is primed to take advantage of the booming US recreational market.
They have secured partnerships with the biggest cannabis companies in the US, and their portfolio is second to none.
And with the sector-wide pullback of 2019, this company is now at a bargain-basement price.
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