The legal marijuana market in the United States hauled in over $8 billion last year, according to Matt Karnes of GreenWave Advisors. That's a lot of money. Americans spend about $50 billion per year on pot, however. So, there's still a lot of opportunity for growth, especially for top marijuana retailers MedMen Enterprises (MMNFF 4.56%), Curaleaf Holdings (CURLF -1.98%), and Trulieve Cannabis (TCNNF).
These retailers could see their sales skyrocket as more states pass pro-pot laws and existing markets mature, making them top marijuana stocks to watch in 2019.
No. 1: Medmen Enterprises
A game-changing acquisition that would significantly increase its retail footprint could close later this year, and if so, MedMen could be in a prime position to become one of the biggest marijuana retailers.
MedMen already operates 20 dispensaries in five states, including nine stores in California . However, if its acquisition of PharmaCann goes off without a hitch, it will operate 30 stores, with an opportunity to open 78 stores in 12 states.
In January, the retailer released preliminary fourth-quarter financials that show its existing dispensaries are going gangbusters. Its systemwide revenue increased 40% quarter over quarter to $30 million in Q4. Including stores it's announced it is buying, revenue was $50 million in the quarter.
The company didn't provide any bottom-line figures, but it did say its gross margin improved to 54% from 45% in the previous quarter.
MedMen's official financials should be announced Feb. 27, so investors will want to watch for any updates to the timeline for closing its PharmaCann acquisition. Also, it will be important to see if it updates plans for new store openings. Currently, MedMen is targeting 16 new locations in 2019, including 12 stores in Florida.
Investors shouldn't expect MedMen to offer up profit, though. Its expansion plans mean it's spending hand over fist rightly to establish a foothold in this market.
No. 2: Curaleaf Holdings
Not including MedMen's PharmaCann purchase, Curaleaf operates the biggest network of marijuana dispensaries.
It's got 42 retail stores open and it hopes to have 69 stores up and running by the end of 2019. Additionally, Curaleaf is a vertically integrated cannabis company. It grows marijuana at 12 locations, operates 10 facilities, and stocks its shelves mostly with its own products.
In the past, the bulk of its revenue has come from medical marijuana sales, but recreational sales could account for a growing share of sales following the passing of adult-use laws in key states. Since medical marijuana typically offers higher gross margins than recreational marijuana, investors will want to see what proportion of revenue comes from adult-use markets in 2019 and what impact product mix has on margin.
Marijuana investors should also keep an eye on how Curaleaf's expansion plans impact its income statement. Most of Curaleaf's stores are on the East Coast, including 22 locations in Florida, and its goal is to open about one store per week this year, including 13 locations in Florida.
No. 3: Trulieve Cannabis
Speaking of Florida, investors are going to want to keep an eye on Trulieve Cannabis' performance there this year. Trulieve operates 24 marijuana stores in Florida, plus a delivery service that accounts for about 10% of its sales. Its annual grow capacity is 19,429 kilograms and management estimates its market share is 65% in Florida.
Florida accounts for all its revenue right now, but the company recently orchestrated deals to expand into Massachusetts and California. Nevertheless, it's still going to be heavily reliant on the Sunshine State, where it hopes to have 30 stores open by the end of March. According to GreenWave Advisors, marijuana sales in Florida will increase 165% this year to $557 million.
It will be important to know whether increasing competition in Florida challenges Trulieve's market share this year and if management can open stores in new markets without taking too big of a toll on its bottom line. Currently, Trulieve is the only one of these three cannabis retailers that's turning a profit. Its revenue was $28.3 million in Q3 2018, up from $19.7 million in 2017, and its operating income was $11.6 million in the third quarter, excluding fair value adjustments.
In November, management said revenue could reach $214 million in 2019 and $291 million in 2020. When the company reports its fourth-quarter financials, it will be interesting to see if those forecasts get updated and if management updates insider plans to sell shares. When Trulieve's lock-up period expired last month, insiders said they wouldn't sell 75.5 million of the 98 million shares possible before July 25. If that timeline remains, then insider selling this summer could create a stiff headwind to the share price.
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