At the end of the first month of adult-use sales in Illinois, cannabis companies are pursuing additional dispensaries as a way to expand product availability.

The midwestern state’s cannabis market is poised to offer a competitive runway for all public players, given the high demand from consumers and the restrictions in place for opening stores.


On Thursday (January 30), Illinois-based Green Thumb Industries (GTI) (CSE:GTII,OTCQX:GTBIF) confirmed its expansion plans will continue with the opening of its seventh dispensary in its home state. The store, under the banner name Rise, will be located in the city of Quincy and will open this Friday (January 31).

 

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This represents the second adult-use only store in the portfolio of dispensaries owned by GTI. The Quincy store obtained its license for recreational sales on January 13, according to the Illinois Department of Financial and Professional Regulation (IDFPR), the state agency tasked with overseeing dispensaries in the state.

On Wednesday (January 20), Jushi Holdings (CSE:JUSH,OTCQX:JUSHF), a public multi-state operator that is a relative newcomer to the space, told its investors it has secured a majority ownership stake in two existing dispensaries in Illinois. This market entry for Jushi is driven by these stores.

One of the stores, located in Sauget, has already been approved by the IDFPR to sell adult-use products. The second store is eligible to pursue this approval, but has not done so yet. According to Jushi, both stores, per state dispensary regulations, are allowed to seek the opening of an additional location.

Jim Cacioppo, chairman and CEO of Jushi, described the state market as “attractive, competitive and limited license.”

Cresco Labs (CSE:CL,OTCQX:CRLBF), a fellow Illinois-based operator with one of the largest presences in the state, has indicated it plans to open what it calls high-profile locations of its Sunnyside dispensary stores in Chicago, including one near Wrigley Field, home of the Chicago Cubs.

As the state has faced supply difficulties due to high demand from its consumer base, it is expected that the number of stores will continue going up to alleviate the pressure.

Amid all the potential future stores, Columbia Care (NEO:CCHW,OTCQX:CCHWF) has indicated it plans to open a second store in Chicago “later this year.”

The volume seen by the introduction of recreational sales has been a boon for these operators, who have confirmed rising interest.

Nicholas Vita, CEO of Columbia Care, said Illinois is “going to be a terrific performer” moving forward. Earlier in the month, the company told investors it had seen a 260 percent increase in transactions for its Chicago dispensary, or more significantly a 100 percent increase of revenue for this location, compared to its December 2019 daily averages before the launch of adult-use sales.

During a public question and answer thread on Reddit, Adam Bierman, CEO of MedMen Enterprises (CSE:MMEN,OTCQX:MMNFF), said its dispensary in Chicago now sees 200 transactions per hour thanks to the addition of recreational sales.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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