U.S. Cannabis Stocks Set to Profit Off Illinois Legalization

U.S. Cannabis Stocks Set to Profit Off Illinois Legalization
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3 U.S. Cannabis Stocks to Bloom on Illinois Legalization

You can now spark it up in Illinois—almost. And that’s good news for three U.S. cannabis stocks in particular.

Illinois just became the 11th U.S. state to legalize recreational cannabis. On June 25, Illinois Governor J.B. Pritzker signed a bill that will make recreational marijuana sales legal in the “Land of Lincoln” starting on January 1, 2020. That gives cannabis companies just six months to prepare for the New Year’s celebration. (Source: “Illinois becomes 11th state to allow recreational marijuana,” Associated Press, June 25, 2019.)

Illinois took an innovative approach to legalizing recreational cannabis. While most other states did so after holding voter referendums, Illinois is the first state to initiate legalization through the legislative process.

The new law will allow Illinois residents age 21 or older to possess up to one ounce (30 grams) of marijuana.

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The legalization of recreational cannabis in Illinois means approximately 800,000 people who have criminal records for buying or possessing 30 grams or less of weed could have their records expunged.

Pritzker previously said that once recreational cannabis is legal, taxes generated from marijuana sales could bring in $58.0 million in 2020 and $500.0 million by 2024. Through legalization, 25% of recreational cannabis sales will funnel back into the state to help redevelop impoverished neighborhoods. Twenty percent of the revenue will go to substance abuse programs. (Source: Ibid.)

Marijuana legalization in Illinois, with a population of approximately 12.8 million, means that a world of opportunity awaits cannabis producers who already have a presence in the state.

Below are three U.S. cannabis stocks that should benefit from the legalization of recreational marijuana in Illinois.

Cresco Labs Inc

In just two months, Chicago-based Cresco Labs Inc (OTCMKTS:CRLBF, CNSX:CL) went from being just a face in the crowd to one of the most talked about players in the U.S. cannabis industry. (Source: “Corporate Overview,” Cresco Labs Inc, last accessed June 26, 2019.)

In March, the multi-state seed-to-sales company announced it was acquiring VidaCann for $120.0 million, giving it access to the Florida market. Then, on April 1, Cresco Labs announced it was acquiring Origin House, also known as CannaRoyalty Corp (OTCMKTS:ORHOF, CNSX:OH) to the tune of $815.7 million in stock. (Source: “Cresco Labs to Acquire Origin House in Largest-Ever Public Company Acquisition in the U.S. Cannabis Sector,” Cresco Labs Inc, April 1, 2019.)

The deal gives Cresco Labs access to California, the largest cannabis market in the world and the fifth-largest economy on the planet.

Once completed, Cresco-branded products will be available in more than 725 dispensaries, giving it the biggest, most strategic footprint of any marijuana company in the U.S.

Cresco Labs Inc has operations in 11 states, six of which are in the most populated states in the country.

On an operational front, Cresco Labs currently has 23 production facilities, 56 retail dispensary licenses, 22 retail dispensaries, approximately 350 products, and 5,000 stock keeping units (SKUs).

This should help Cresco Labs reach its 2021 revenue goal of $1.0 billion, a massive increase from the $43.3 million it reported in 2018. It is also a figure that will help the company rival larger, limelight-hogging licensed producers in Canada.

In late April, Cresco Labs announced strong fourth-quarter results, with revenue growing 411% and full-year revenue up 294%. It also swung to profitability of $3.9 million.

On May 29, Cresco announced that its first-quarter revenue was up 313% year-over-year, at $21.1 million, and that its net loss was $7.6 million, compared to a net income of $0.6 million in the same period last year. (Source: “Cresco Labs Announces Profitable First Quarter 2019 Financial Results with Revenue Growth of 313% Year-over-Year and 24% Quarter-over-Quarter,” Cresco Labs, Inc, May 29, 2019.)

The company has total assets of $364.0 million, which includes cash equivalents of $106.1 million, and zero debt.

CRLBF Stock Information
Market Cap $1.1 Billion
52-Week Change 162.1%
52-Week High $40.63
52-Week Low $0.81
50-Day Moving Average: $10.92
200-Day Moving Average: $9.26

(Source: “Cresco Labs Inc. (CRLBF),” Yahoo! Finance, last accessed June 26, 2019.)

MedMen Enterprises Inc.

MedMen Enterprises Inc (OTCMKTS:MMNFF, CNSX:MMEN) cultivates, produces, distributes, and sells recreational and medicinal cannabis to numerous states across the U.S., including Illinois, California, Arizona, Florida, Nevada, and New York.

It has 17 factories, 86 retail store licenses, and 37 operating stores, with the company expecting to operate 50 stores by the end of 2019. (Source: “Corporate Presentation June 2019,” MedMen Enterprises Inc, last accessed June 26, 2019.)

On October 11, 2018, MedMen announced plans to acquire PharmaCann, one of the largest medical marijuana operators in Illinois, for $682.0 million.

Through the transaction, MedMen will acquire licenses in Illinois, Massachusetts, Maryland, New York, Pennsylvania, Ohio, Virginia, and Michigan. (Source: “Illinois Governor Signs Landmark Cannabis Legalization; MedMen Well-Positioned to Serve Market,” MedMen Enterprises Inc, June 25, 2019.)

The transaction is expected to close at the end of this year. When it does, MedMen will instantly become one of the largest cannabis retailers in Illinois, with 10 stores.

MMNFF Stock Information
Market Cap $391.6 Million
52-Week Change -30.3%
52-Week High $7.57
52-Week Low $1.88
50-Day Moving Average: $2.27
200-Day Moving Average: $2.83

(Source: “MedMen Enterprises Inc. (MMNFF),” Yahoo! Finance, last accessed June 26, 2019.)

Green Thumb Industries Inc

Chicago-based Green Thumb Industries Inc (OTCMKTS:GTBIF, CNSX:GTII) grows, produces, and sells its own branded inhalable, ingestible, and topical cannabis products in 12 states, with an addressable market of 150 million. (Source: “Investor Presentation | JUNE 2019 ,” Green Thumb Industries Inc, last accessed June 26, 2019.)

Green Thumb’s national footprint includes Illinois, California, Nevada, Colorado, Florida, New York, Pennsylvania, and Ohio.

It owns six brands and has 13 products facilities, 23 open stores, and 89 retail licenses. In Illinois, Green Thumb operates five dispensaries and is expanding its footprint. Most recently, it acquired Evergreen Dispensary, LLC, owner of a retail store located just outside of Peoria.

On June 5, the Green Thumb closed its acquisition of Las Vegas-based Integral Associates. With the acquisition, Green Thumb now has three high-traffic stores in Las Vegas, including the only one on the Las Vegas Strip. It also won eight additional retail licenses in the Reno and Las Vegas areas.

With Integral Associates, Green Thumb also entered the California market with one of five retail licenses for West Hollywood. It was also awarded a retail store license for Pasadena on June 5.

On May 30, Green Thumb Industries announced that revenue for the first quarter, ended March 31, increased 155% year-over-year to a record $28.0 million. Revenue was also up 34% on a sequential basis. (Source: “Green Thumb Industries (GTI) Announces Record Revenue of $28 Million and Record Sequential Revenue Growth of 34% for First Quarter 2019,” Green Thumb Industries Inc, May 30, 2019.)

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter was almost $4.9 million, compared to a loss of $0.4 million in the first quarter last year.

As of March 31, Green Thumb Industries had total assets of $661.5 million, which included cash and cash equivalents of $117.1 million. It currently has a total outstanding debt of $6.7 million.

GTBIF Stock Information
Market Cap $2.3 Billion
52-Week Change -2.7%
52-Week High $25.03
52-Week Low $6.44
50-Day Moving Average: $11.51
200-Day Moving Average: $12.50

(Source: “Green Thumb Industries Inc. (GTBIF),” Yahoo! Finance, last accessed June 26, 2019.)

Analyst Take

The legalization of recreational cannabis in Illinois will be a boon for marijuana stocks that already have a strong presence in the state. In particular, Cresco Labs, MedMen, and Green Thumb Industries should be some of the biggest winners come January 1, 2020.

While legalizing recreational marijuana has stalled in a number of U.S. states this year, that logjam will eventually open up. It’s going to be tough for the rest of the country to say no to cannabis legalization when they see the hundreds of millions—and in some cases, billions—of dollars that are streaming into cash-strapped state coffers.