Please ensure Javascript is enabled for purposes of website accessibility

Here's How to Profit From California's $3.1 Billion Cannabis Industry

By Joe Tenebruso – Aug 20, 2019 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Golden State represents the world's largest legal marijuana market.

California's legal cannabis market will grow 23% to $3.1 billion in 2019, according to a new report by Arcview Market Research and BDS Analytics. And by 2024, the state's legal weed industry could exceed $7 billion in annual sales. 

Strict testing regulations and local bans on commercial sales of cannabis weighed on California's recreational marijuana sales in 2018. An industry shakeout occurred, and many smaller cannabis companies folded. But the remaining players are now better situated to profit from the long-term growth of California's legal pot market.

"California companies that survived the dual 'extinction events' of 2018 have emerged stronger and well-positioned to grow their market share going forward," Arcview Group CEO Troy Dayton said in a press release. "More than that, they are battle-hardened, and kicked off a merger and acquisition flurry in the first half of 2019 that will allow them to leverage their positions in California to compete across the country."

Arcview and BDS' report also noted that California represents a largely untapped opportunity for cannabis retailers. The state currently has a low number of marijuana stores relative to its population, with only one licensed retailer for every 35,147 adults over the age of 21. That's in stark contrast to states like Oregon and Colorado, which have one dispensary for every 5,567 and 4,240 adults, respectively.

Let's look at some of the companies striving to meet the need for cannabis retailers in California's booming market.

A sign that says welcome to California with a picture of a marijuana leaf on it

Image source: Getty Images.

Cresco Labs

Dispensary operator Cresco Labs (CRLBF -9.30%) has cannabis operations in 11 states. But it's the company's pending megamerger with Origin House (ORHOF) that makes it a great play on California's weed market in particular.

Origin House possesses one of the few cannabis distribution licenses in California. Once the deal is finalized, Origin House's license will allow Cresco to distribute its cannabis products to more than 500 licensed dispensaries in California.

In turn, analysts forecast that Cresco Labs' revenue will soar 370% in 2019 and another 240% in 2020. If the company can deliver on its tremendous growth potential, its stock could provide investors with an excellent way to profit from the massive demand for legal marijuana in California.

Planet 13 Holdings

While Cresco Labs is working to get its pot products into hundreds of retail locations, Planet 13 Holdings (PLNH.F -4.88%) is opening its first store in the Golden State. But don't let that stop you from taking a look at its stock, because it's no ordinary store.

Planet 13's SuperStore in Las Vegas will span 112,000 square feet when completed. That's slightly bigger than the average Walmart. Beyond its massive size, Planet 13's SuperStore differentiates itself with a destination-type consumer experience. A sleek design; personalized service; and a huge selection of cannabis flowers, edibles, beverages, and concentrates have all proven popular with shoppers. In turn, Planet 13 has seen the number of people visiting its SuperStore and average spending per visitor rise sharply since it opened in November. 

Planet 13 plans to bring this type of experience to California. In June, the company announced its intention to open a 40,000-square-foot cannabis store in Santa Ana. The new site is a 10-minute drive from Disneyland and only three miles from the South Coast Plaza mall, which hosts 24 million visitors a year. 

If Planet 13 can replicate its Vegas-based SuperStore's success at this new location, investors who buy its stock today could be well rewarded.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool recommends Origin House. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Planet 13 Holdings Inc. Stock Quote
Planet 13 Holdings Inc.
PLNH.F
$1.17 (-4.88%) $0.06
Cresco Labs Inc. Stock Quote
Cresco Labs Inc.
CRLBF
$2.73 (-9.30%) $0.28
Origin House Stock Quote
Origin House
ORHOF

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.