Perhaps it's appropriate that marijuana is green, because the "green rush" is rapidly turning into a big-money business. Last year, according to the newest State of the Legal Cannabis Markets report from Arcview Market Research and BDS Analytics, licensed-store sales topped $10 billion globally for the first time in history, and worldwide revenue for licensed sales could grow at slightly more than 24% a year through 2024.
But even though cannabis is thriving in more countries than ever, it's the United States that is perched atop all others. Although estimates vary wildly, it's believed that the U.S could represent anywhere from a third to up to three-quarters of total licensed-store marijuana spending each year. That makes it the market investors should really be eyeing.
Which states will sell the most recreational marijuana in 2019?
Thankfully, Arcview and BDS have done the legwork for investors and laid out projections on medical and recreational sales for nearly all 50 states, save for a few that have virtually no shot of legalization (medically or recreationally) by 2024. Since the adult-use market is projected to dwarf medical marijuana sales within the next couple of years, today we're going to look at where your state ranks in estimated recreational pot spending for 2019, if it allows it.
As you may be aware, the federal government has remained steadfast on its classification of cannabis as a Schedule I drug. This means it's wholly illicit, prone to abuse, and has no recognized medical benefits. In other words, if recreational weed is to be legalized, it has to be done on a state-by-state basis. As of this past weekend, 11 states had passed laws via ballot or legislative initiative to legalize adult-use marijuana. In alphabetical order, they are:
Don't see your state on this list? Well, that makes estimating its recreational marijuana spending in 2019 very simple: $0.
But even some of the states listed above will have $0 in adult-use marijuana sales for 2019. For example, Illinois only signed its adult-use cannabis bill into law a few weeks ago, with sales not beginning until Jan. 1, 2020. Also, despite legalizing adult use in 2018, Michigan won't see its first sales until after Illinois in 2020. That means nothing in recreational weed revenue this year for either state.
Likewise, although Vermont's legislature legalized adult-use marijuana, retail sales of the drug are not permitted. However, regulations for adult-use sales are expected to be set soon, which will allow recreational sales to commence sometime in 2020.
These eight states are battling for your recreational cannabis dollars in 2019
That leaves eight states to rank, based on projected adult-use marijuana spending in 2019. Here are the results, according to Arcview and BDS:
- California: $3.1 billion
- Colorado: $1.3 billion
- Washington: $1.1 billion
- Oregon: $707 million
- Nevada: $700 million
- Massachusetts: $250 million
- Alaska: $146 million
- Maine: $29 million
Keeping in mind that the pot industry is still nascent in the United States, California is expected to generate more than 40% of the country's recreational revenue in 2019, with Colorado and Washington responsible for 17% and 14% of national adult-use sales, respectively.
And even though Nevada only slots in at fifth on this list, it also deserves a lot of credit. Growing from $478 million in recreational sales in 2018 to perhaps $700 million in 2019 -- and with the highest projected per-capita spending of any state by 2024 -- the Silver State is one to watch.
Vertically integrated U.S. pot stocks jockey for position
Well over $7 billion in recreational pot sales are expected in 2019, and upward of $21 billion in adult-use licensed-store sales are forecast by 2024 in the U.S. So it should come as little surprise that we've witnessed such aggressive acquisition and expansion activity among vertically integrated dispensary stocks.
For example, Cresco Labs (NASDAQOTH:CRLBF) currently holds "only" 56 retail store licenses on a pro forma basis (i.e., if every pending acquisition were to close). That might sound like a lot given that marijuana is wholly illegal at the federal level, but it's not even in the top five among dispensary stocks. Nevertheless, this hasn't stopped Cresco Labs from creating a lot of buzz, especially with its proposed acquisition of Origin House (NASDAQOTH:ORHOF). The all-stock deal, when first announced, was for $823 million, and is simply awaiting approval from the U.S. Justice Department at this point.
What makes Cresco's buyout of Origin so intriguing is Origin's niche operations within California. There are seemingly thousands of products for sale in hundreds of licensed dispensaries, but Origin House holds one of just a handful of California's cannabis distribution licenses. By purchasing Origin House, Cresco Labs is going to gain access to more than 500 California dispensaries, boosting its reach to well over 700 national dispensaries. Perhaps this is why Wall Street expects Cresco Labs to lead all marijuana stocks in 2020 sales.
Another unique dispensary model worth watching is Planet 13 Holdings (NASDAQOTH:PLNHF). Rather than join the fracas and expand into as many states as it can, Planet 13 is focusing on the uniqueness of the cannabis-buying experience with its SuperStore model.
In November, Planet 13 opened its SuperStore just west of the Las Vegas Strip. The 16,200 square feet that are currently accessible pale in comparison to the 112,000 square feet of the finished product, which will include an events center, pizzeria and coffee shop, and consumer-facing processing site. Having visited the SuperStore while on vacation, I can tell you that a lot of planning went into product placement within the store, and that the incorporation of technology really adds to the personalization of the experience.
Planet 13 also recently announced plans to open a 40,000-square-foot dispensary in Santa Ana, Calif., just a 10-minute drive from Disneyland. With the two largest dispensaries in the country, it'll be interesting to see if Planet 13 can duplicate its early success from its SuperStore into its new location.
The point being that dispensary stocks are following the money, which means investors should be, too.