Author: Debra Borchardt

The cannabis industry has proven over time that planting a flag in a new adult-use state pays off handsomely. For MSOs that chose wisely, New Jersey helped boost top-line sales in 2022 and this year it was the companies that staked a claim in Maryland. The pent-up demand in those states along with sales from residents of neighboring states have shown that picking the next new market is a winning strategy.

A new report from cannabis analyst Pablo Zuanic of Zuanic & Associates looked at the next potential legal adult-use states and which companies would benefit from being in those states. The analyst looked at which states could potentially begin adult-use sales before 2025, but he did not try to guess the probabilities of when such sales could begin. Those states included Florida, Minnesota, Ohio, Pennsylvania and Virginia. He opted to exclude New York and Delaware since those states are experiencing many uncertainties. He believes the Pennsylvania and Florida markets could be the largest.

The analyst also chose three different scenarios to try to estimate the potential in these markets. The first was the experience of other medical states that have shifted to adult use and the second and third scenarios were based on other states’ per capita spending which ranged from $200 to $300.

Pennsylvania

Pennsylvania has a solid medical market, with sales above $1.5 billion. On a total per capita spend basis, Zuanic said that PA med is about 10x Virginia. The state has 178 dispensaries, which makes it less dense compared with 606 in Florida, however, Zuanic thinks it could be even bigger than Florida with fewer format restrictions. As per public data:

• Trulieve has 20 stores
• Curaleaf 18
• Green Thumb Industries 18
• Verano 17
• Jushi 16
• Cresco Labs 14
• Ayr  Wellness 9
• TerrAscend 6
• The Cannabist 3
• Ascend 2

The report stated that “The EBITDA upside vs. 2023 FactSet consensus EBITDA, would be over 100% for Jushi (the largest PA beneficiary as per our math). Next would be companies with EBITDA upside in the 25% range (Ayr, Cresco, TerrAscend). Taking a 7x EBITDA multiple on that EBITDA delta would imply over 200% upside for Jushi and >100% for AYR. The next beneficiaries would be with ~40%, Cannabist, Cresco, and Trulieve.”

Florida

There are 606 stores, with nine publicly traded MSOs (multi-state operators) owning 428, and 178 by private operators (Parallel has 45 stores; Green Dragon 35; public SSO Cansortium has 33; Sanctuary 21, plus others). Trulieve has 129, Verano 73, Ayr 62, Curaleaf 60, Cresco 33; VidaCann (in the process of being acquired by Planet13) 26; iAnthus 18; Cannabis 14; and Green Thumb 13.

While there are large variations in store performance within the state, Zuanic employed the same analysis. He found that under the EBITDA upside for Ayr would be 60% and 47% for Trulieve. The report stated, “Several companies would see EBITDA go more than 20% (Cannabist, Cresco, Curaleaf, Verano). In terms of market cap impact, the upside for Ayr would be above 300%, and over 100% for iAnthus and Trulieve (180% for Trulieve if the upside is calculated on flower volume share).”

Minnesota

Minnesota has legalized adult-use cannabis but hasn’t appointed a regulator and it’s difficult ti guess when sales could begin. It is a relatively small program with an estimated 2023 sales in the range of $65-70 million. So far there are only two licensees, a financially stable Green Thumb Industries and a financially challenged Goodness Growth (operating under the Vireo Health banner).

The analyst wrote, ” As per our math, the EBITDA delta for Green Thumb under scenario 1 would provide a 26% lift vs. 2023 FactSet estimates. For Goodness Growth, the jump would be 370%. In terms of market cap, the benefit for Goodness Growth would be over 2000% and over 25% for Green Thumb.”

Ohio

Zuanic estimates the medical market in Ohio will be around $480 million in 2023. The state is similar in size to Pennsylvania, but not as robust of a market for medical patients. However, he thinks if it turns to adult-use it could eclipse the PA market. At present, there are 110 licensed stores in Ohio and six MSOs have five stores each (Acreage, Ascend, Cannabist, Cresco,
Green Thumb, Verano); Trulieve and Vext each have four; Ayr has three; Curaleaf has two; Jushi and MariMed have one each. The report found that under Scenario 1, the EBITDA upside vs. 2023 FactSet consensus EBITDA, would be over 170% for Vext, 70% for Acreage, and almost 30% for the Cannabist.

Virginia

Zuanic estimated this medical market is only at a run rate of $145 million, which implies a low total annual per capita spend of $17. He thinks the VA adult-use market could be up quickly to 6-8x spend per capita. At 6x, it would ‘only’ get to $100 per cap versus Maryland which is now close to $180 per capita spend. At present, there are four vertical licenses, with The Cannabist Holding two, Green Thumb one, and Jushi one. He wrote, “We expect each licensee to get to the 6-store cap per license soon. We assume no major performance difference between the operators, so based on stores, we model 50% share for the Cannabist, and 25% each for the other two companies. For modeling purposes, we assume the incumbents have a 2-year window with limited new competition.”

The analysis determined the EBITDA upside vs. 2023 FactSet consensus EBITDA, would be >200% for The Cannabist, ~190% for Jushi, and 26% for Green Thumb (a more diversified and more profitable operator).