William Sumner
Analysts with Canaccord Genuity (CG) have increased their 2019 to 2022 long-term growth outlook for the U.S. cannabis industry from 19% CAGR to 20%. According to the report, the modest increase was attributed primarily to increased expectations for Illinois’ adult-use market, as well as recent positive trends in the Nevada and Massachusetts market.
Illinois
Earlier this year, the Illinois legislature passed a law legalizing the use and sale of recreational cannabis. Although regulations for the state’s adult-use market have not yet been formed, CG is making a bet that existing operators in the medical market will be among the first to receive licenses and that recreational sales will begin sometime next year.
As a result, analysts are upping their estimates for the Illinois cannabis market from $277 million in 2020 to $488 million. By 2022, that figure is expected to grow to $987 million, up from CG’s initial estimate of $395 million. Acreage Holdings (ACRG.U), Harvest Health & Recreation (HARV) and MedMen (MMEN) are expected to benefit from this market expansion as they already have existing medical cannabis operations in Illinois.
Nevada
Growth estimates for the Nevada market have also been increased. Nevada cannabis sales are expected to reach $745 million in 2019 and grow to nearly $1 billion by 2022. Although there is pending litigation surrounding the state’s 2018 licensing rounds, analysts expect the matter to be resolved in over the next few months, which either will result in additional licenses being issued or a completely new series of licensing applications. This, in turn, will help drive the creation of more cannabis businesses.
Furthermore, several large-scale cultivation operations are expected to become operational in the short term, which should help alleviate supply issues and help drive down cannabis prices. CLS Holdings USA Inc. (CLSH), DionyMed, Green Growth Brands (GGB), Harvest Health, iAnthus, MedMen, Planet 13 (PLTH), Plus Products (PLUS) and 1933 Industries (TGIF) are expected to benefit the most from growth in the Nevada market as they have significant exposure there.
Massachusetts
While Massachusetts’ adult-use market has been incredibly slow in rolling out, CG analysts expect the market to experience accelerated growth in the coming months. In addition to natural growth, they note in the report that a number of operators have secured licenses for retail stores close to population centers, such as the Boston suburbs of Brookline and Newton, which should spur growth.
By the end of 2019, Massachusetts’ cannabis market size is expected to reach $600 million and grow to $1.2 billion by 2022. The companies that are expected to benefit the most from this growth are Acreage Holdings, Columbia Care Inc. (CCHW), DionyMed Brands Inc. (DYME), Harvest Health, iAnthus (IAN), KushCo Holdings Inc. (KSHB), Slang Worldwide Inc. (SLNG), TILT Holdings (TILT) and Trulieve Cannabis Corp. (TCNNF).
New York/New Jersey
Pushing down CG’s overall growth estimate for the cannabis industry were the markets in New York and New Jersey. Despite expectations, New York this year failed to pass legislation that either legalized adult-use cannabis or expanded its existing medical market. Given this legislative failure, it is unlikely that the state will attempt to pass another legalization measure for the next two years.
The most likely scenario is that adult-use cannabis will make it on to the 2020 ballot. Assuming the measure passes, which many expect that it would, New York’s adult-use cannabis market would come online by 2021 at the earliest. Because of this, CG has reduced their 2019 and 2020 New York estimates from $458 million and $604 million to $261 million and $265 million, respectively.
Similarly, New Jersey also failed to pass adult-use cannabis legislation this year, although the expansion of its medical cannabis program remains a possibility. Consequently, CG now estimates that 2019 and 2020 New Jersey medical sales will be approximately $123M and $227M, respectively. Should the state expand its medical program, those figures could change.
