With the launch of cannabis legalization in the midwestern state, INN takes a look at Illinois, a market that offers a large addressable recreational cannabis industry that could rival that of Colorado once it gets rolling.
Illinois is the most recent addition to the growing number of jurisdictions in the US that have made the leap to full cannabis legalization.
The legalization was historic; with the passing of the bill, Illinois became the first state to legalize recreational use through its legislature instead of a citizen-led initiative.
As the sixth largest state in the US and with a population of 12.7 million, Illinois offers a large addressable recreational cannabis industry that could rival that of Colorado’s — according to a report from cannabis research firm Brightfield Group — once it gets rolling.
With the launch of recreational cannabis use in the state kicking off the new year, the Investing News Network (INN) takes a look at the growth of the legal cannabis industry in Illinois and explores potential investment opportunities the midwestern state’s cannabis companies have to offer.
Illinois cannabis legalization: Timeline for cannabis legalization law in Illinois
Illinois has had a long history when it comes to its marijuana laws.
The recreational use of cannabis was first outlawed in Illinois in 1931 through The Narcotic Drug Control Law — though medical substances that contained cannabis mixed with other ingredients were spared in its provisions.
Nearly half a century later in 1978, the state passed its Cannabis Control Act, which technically legalized medical marijuana but neither the Department of Human Services nor the Department of State Police took action to fully enact the law.
Illinois eventually circled back to medical cannabis legalization in 2013 with the passing of the Compassionate Use of Medical Cannabis Pilot Program Act. The medical marijuana program came into effect in 2014, launching what would become a lucrative industry in the state.
In 2016, possession of the drug was decriminalized and the zero-tolerance policy for driving under the influence was loosened.
The state decided to take its most recent step with regards to legalizing marijuana this year.
The Illinois Cannabis Regulation and Tax Act was signed by the state’s Governor JB Pritzker in June. The bill reads, “(The legalization is) in the interest of allowing law enforcement to focus on violent and property crimes, generating revenue for education, substance abuse prevention and treatment, freeing public resources to invest in communities and other public purposes, and individual freedom.”
The new legislation is slated to kick in on January 1, 2020, allowing adults aged 21 and over to purchase up to 30 grams of legal marijuana and five grams of cannabis concentrate. They’ll also be able to buy cannabis-infused products containing no more than 500 milligrams of tetrahydrocannabinol (THC).
Illinois cannabis legalization: Risks and benefits of investing in the midwest state
Perhaps the biggest hurdle when it comes to investing in cannabis in Illinois is the supply issue.
The licensing structure that would allow companies to cultivate and grow cannabis has been criticized for its inadequacy.
As it is, only medical cannabis companies that already exist in the state will be able to cultivate, produce and sell cannabis, meaning the 55 dispensaries that currently stand will bear the responsibility of providing marijuana for the entirety of the state’s population during the early months of legalization.
Existing operators will be able to open a second retail location, but those might not be accessible until mid 2020.
Dr. David Ostrow, a medical practitioner based in Chicago, told Forbes the small number of licenses will ultimately help larger players corner the market.
“The allocation favors the monopolies that are forming, like Cresco and MedMen,” Ostrow said.
The state plans to award up to 75 licenses for dispensaries in May 2020, creating a gap between the enacting of the bill and when recreational retailers go online.
It isn’t all bad news, however. Illinois’ medical cannabis sector has proven to be a big revenue generator for the state.
Data from the Medical Cannabis Patient Program reported the Department of Health had approved over 87,000 patients since medical marijuana was legalized in 2014, and retail sales for medical cannabis have raked in more than US$172 million since the year started.
Despite the rollout challenges, Illinois’ cannabis space is still one that has the potential for quick growth moving forward.
Beacon Securities Analyst Russell Stanley told INN that Illinois’ marijuana sector benefits from having governmental support.
“It’s a market that has … accelerated growth, because of legislative changes that made it a lot easier for a patient to get a medical card. So the regulatory trends are supportive in terms of making it easier for people to get access to product,” Stanley said.
Illinois cannabis legalization: Top Illinois marijuana stocks for investors
While some multi-state operators (MSOs) have begun to bring their operations into Illinois, there are some firms of note investors may want to watch out for in 2020.
The Chicago-based Cresco Labs (CSE:CL,OTCQX:CRLBF) was an early mover in the state and currently has five dispensaries in Illinois.
Those five retail stores recently received early adult-use licenses from the state government, and the company also got approval for adult-use cultivation.
In its most recent quarterly results, the firm attributed its growth, in part, to revenues from the Illinois market, noting a 21 percent quarter-over-quarter growth to US$36.2 million.
Another Illinois native, Green Thumb Industries (GTI) (CSE:GTII,OTCQX:GTBIF), also has an impressive position in the state’s marijuana industry.
Similar to Cresco Labs, GTI has seven retail locations in the state, out of a total 96 locations.
GTI said in its most recent quarterly report that its brand portfolio has seen significant quarter-over-quarter growth and the company plans to expand its production capacity in Illinois, as well as some of its other addressable states.
GTI reported US$68 million in revenue, an increase of 52 percent from the previous quarter. The firm credited its growth in revenue to its recent acquisition of the Essence network of stores.
There’s also Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF). While Harvest isn’t a native to the state, it is positioned to take on a portion of the market share in Illinois.
In March, the firm announced the US$850 million acquisition of Verano Holdings, expanding its retail footprint to 11 states, including Illinois, which the firm indicated is one of the leaders in the cannabis space in the US.
Harvest has generated US$33.2 million in its most recent quarter, a jump of 25 percent from the previous operational period.
In a previous interview with INN, Nawan Butt, associate portfolio manager with Purpose Investments, said the US area known as the Rust Belt, which includes states like Illinois, Michigan, Ohio, Pennsylvania, is very attractive for investors.
Illinois cannabis legalization: Investor takeaway
Though Illinois’ rollout of recreational cannabis could have its challenges, the new addition to its existing cannabis space is sure to further boost the already profitable market in the state.
“(Beacon Securities) really think(s) the adult-use market opening is going to really stimulate some growth there,” said Stanley.
As the new cannabis legislation comes into effect, investors should keep their eyes on firms with already established operations in the state.
Don’t forget to follow us @INN_Cannabis for real-time news updates!
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.