What You Need to Know About the Florida Cannabis Market

- December 30th, 2019

As investors continue to look for growth in the US cannabis space, interest in one state in particular has jumped. Here’s a look at Florida cannabis market potential.

Florida has quickly risen among the pack of states with legal cannabis programs for investors as the potential for this market continues to expand.

The US cannabis space is largely fragmented because of the drug’s illegality at the federal level. Despite that, regulations have loosened at the state level in some locations thanks to programs advancing the sale and use of the drug, allowing for budding cannabis sectors to spring up across the country.

Legislation across the US differs greatly, from decriminalization to full adult use, but one state’s medical cannabis industry has seen unprecedented growth: Florida.

 

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The coastal state’s journey to cannabis legalization has been a challenging one. In 2016, over 70 percent of Floridians voted for a constitutional amendment to allow the use of cannabis for medical purposes. However, then-governor Rick Scott banned smoking medical cannabis.

It wasn’t until earlier this year when Ron DeSantis, current governor of Florida, lifted the ban on smokable marijuana.

In the face of those challenges, the Sunshine State has developed one of the most attractive markets in the country, according to some analysts, and it is positioned to grow rapidly.

In fact, Florida’s medical marijuana space is one of the fastest growing in the country and there has been a push for recreational marijuana as well.

Read on to learn more about the investing opportunities in Florida’s legal cannabis space and the top marijuana stocks to look out for.

Florida cannabis market potential: What the estimates say about the state

Estimates have projected substantial growth for the state’s medical-only cannabis space.

A 2019 update from Arcview Market Research and BDS Analytics put the value of Florida’s medical cannabis sector at US$1.6 billion by 2022. By 2025, medical cannabis sales could be at US$2.5 billion, according to Statista.

At the most recent count, the state had over 260,000 qualified medical marijuana patients and 2,500 qualified physicians, according to the Office of Medical Marijuana Use (OMMU).

The patient count is a small percentage of Florida’s population of 21 million, but it has been steadily growing since the drug was legalized in the state in 2016.

Beacon Securities analyst Russell Stanley said Florida boasts a healthy list of addressable medical conditions that can be treated with cannabis, unlike the medical marijuana program in other states.

“Some other states have had trouble expanding their programs, in part because it’s been very difficult for patients to get access to product,” Stanley told the Investing News Network (INN).

“Other states have had restrictions on which healthcare practitioners can recommend it and what they can recommend it for.”

He added the recent legalization of smokable cannabis was another boon for the industry.

More broadly, Florida is home to the fourth largest economy in the US, reporting a GDP growth rate of 2.9 percent in the first quarter of 2019, almost on par with the national GDP rate of 3.1 percent.

Florida cannabis market potential: Benefits and risks in investing in the state

For Stanley, Florida’s large population — the third largest in the US — is a factor in the attractiveness of its cannabis market. That, coupled with a low number of licenses currently awarded — by last count, the state had given out 22 licenses and, by September, only 12 had dispensaries open — has created unique investment opportunities in the state.

“There’s very high entry barriers, which bodes well for the companies that are that are already operating,” he explained, adding the recent legalization of smokable products and the upcoming introduction of edibles are also highlights investors should consider.

Though only medical cannabis use is legal now, Stanley said, there is a solid chance recreational marijuana legislation will be on the ballot during the upcoming US presidential election in 2020.

Despite the rosy projections and outlook, the analyst did point out some of the more unique aspects of medical cannabis in Florida could also pose issues.

As it is, cannabis firms need to be vertically integrated to operate in the state and because of that, Stanley said, there’s no wholesale market.

The vertical integration requirement was ruled to be “unconstitutional” by a Florida court, but the case was stalled after a split court refused to revisit the matter.

During a panel discussion, Steve Hawkins, CEO of Horizons ETFs Management (Canada), said he viewed vertical integration as one of the key benefits for US companies compared to the Canadian cannabis market.

Only players who have been able to develop cannabis production, manufacturing and distribution capabilities can compete in the marketplace, leaving investors with limited options.

Stanley said some multi-state operators (MSOs) licensed to operate in Florida announced they were slowing their expansion in the state because meeting the requirements of being operational across the supply chain has been challenging.

“Florida is a market that we’ve seen a lot of companies try to get into but obviously, the capital intensity and logistics of trying to get a cultivation and manufacturing facility up and running are proving to be, perhaps, more difficult than some companies anticipated,” said Stanley.

Florida cannabis market potential: Top Florida cannabis stocks for investors

As the industry grows and cannabis legalization continues to be a possibility in Florida, some players have begun to stand out in the state.

Florida native Trulieve Cannabis (CSE:TRUL,OTC Pink:TCNNF) holds the lion’s share of the market and has continually been a top performing stock in the state.

Trulieve opened Florida’s first medical marijuana dispensary back in 2016, and since then it’s grown into a force in the industry, with a current market capitalization of US$1.18 billion.

According to the most recent data from the OMMU, Trulieve sold a combined total of 42.4 million milligrams of tetrahydrocannabinol (THC) and cannabidiol (CBD). Surterra Wellness came in at a distant second place with just under 10 million milligrams, despite having the same amount of dispensaries as Trulieve.

In September, the MSO opened its 33rd dispensary in the state and reported that it sells over half of the state’s overall volume in cannabis products.

Shortly after smokable marijuana was legalized, Trulieve began selling flower and was the first in the state to do so. Trulieve is also benefited by a vertically integrated structure that includes cannabis cultivation, production and distribution, which is essential since cannabis cannot be moved across states lines just yet.

 

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Stanley said Beacon was bullish on Trulieve as it continues to maintain market dominance.

Currently, companies in Florida are only allowed 35 dispensing locations (the cap is slated to end in April 2020) but the Florida Department of Health struck an agreement with the MSO, allowing it to open up to 49 dispensing locations while the cap still exists.

Another big player in the state is the Massachusetts-based Curaleaf Holdings (CSE:CURA,OTCQX:CURLF). Though not native to Florida, Curaleaf’s presence in the state’s cannabis business is substantial. Of the MSO’s total 49 dispensaries, 26 are in Florida, putting it in third place behind Trulieve and Surterra.

The vertically integrated company also launched the state’s first medical cannabis tablets in September, and, after the US$875 million all share acquisition of Grassroots in July, the MSO began touting itself as the world’s largest cannabis company by revenue.

Curaleaf also put up impressive numbers in its second quarter in 2019, reporting a pro forma revenue of US$110.9 million and US$3.4 million of adjusted earnings before interest, tax, depreciation and amortization.

Curaleaf has attributed its financial uptick in large part to its overall strategy in Florida, including the increase in retail and wholesale revenue.

Liberty Health Sciences (CSE:LHS,OTCQX:LHSIF) also has a considerable stake in Florida.

According to the OMMU, Liberty currently has 16 dispensing locations in the state and the company indicated it has signed lease agreements for another six locations as part of its Q1 2019 report.

In April, Liberty also announced that the Florida Department of Health had approved the additional use of 80,000 square feet of greenhouse space at its Liberty 360 Innovation campus in Gainesville, Florida, bringing the total square footage to almost 230,000 square feet.

Despite Trulieve’s market dominance, the company reported it ranked second in marijuana flower sales in Florida and its gross profits were at US$5.01 million in its first quarter of 2019, a marked increase from the US$606,178 in gross profits recorded in the same quarter in 2018.

These marijuana stocks make up the top three public companies in the state, though Stanley mentioned the privately owned Surterra is also a considerable force in Florida’s cannabis industry. The privately owned company has a similar deal with the Department of Health as Truelive and can also go above the store cap.

In a research note issued in August, Canaccord Genuity reported Trulieve, Curaleaf and Liberty Health Sciences represented about 85 percent of the entire dried flower market in the state.

Florida cannabis market potential: Investor takeaway

Stanley said moving forward, there are some key factors to consider when watching Florida’s medical cannabis industry.

The legal battle playing out around the vertical integration requirement is one of them, said Stanley. He added that, whether or not the rule is removed, established players like Trulieve and Curaleaf are well positioned to take advantage in the sector.

If the rule is removed, however, that could lower the barrier of entry for companies, allowing for more cannabis stocks to enter the ring and open up a brand new wholesale market.

The upcoming federal election in 2020 could be a deciding factor, as well.

Presently, though, the state offers an interesting, albeit small, collection of investment opportunities and, as it continues to grow its medical marijuana industry, investors should keep an eye on the Sunshine State.


INNdepth

Want more details? Check out these articles for more INNdepth coverage.

Want an overview of investing in cannabis stocks? Check Investing in the Cannabis Industry


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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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