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The Land of Lincoln could be generating more than $1.1 billion in annual weed sales by 2024, but there are plenty of risks, too.
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Whether you realize it or not, this has been another historic year for the marijuana industry (even if the year-to-date performance of pot stocks doesn't reflect it). In September, the House voted on and passed the Secure and Fair Enforcement (SAFE) Banking Act, representing the first time cannabis reform legislation had made it to the congressional floor for vote. If the SAFE Banking Act were to become law, it would remove the potential for criminal or financial penalties for banks and credit unions that are providing basic financial services to cannabis businesses in legalized states.
Then, less than two months later, the House Judiciary Committee voted 24-10 in favor of the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, although it remains to be seen if the MORE Act will receive a full vote on the House floor. The MORE Act would completely decriminalize marijuana in the U.S., and further represents the shifting sentiment among the public toward legalization.
Image source: Getty Images.
But perhaps the most intriguing history-making moment was the legalization of adult-use cannabis in Illinois in June. Rather than putting an adult-use weed initiative or amendment on a ballot for residents, Illinois became only the second state (after Vermont) to legalize consumption via the legislative process. Moreover, it's the first state to allow the sale of marijuana through legislative approval. Vermont is expected to set rules that eventually allow for the retail sale of adult-use marijuana, but has yet to do so.
Additionally, Illinois' recreational legalization also included an expungement clause, which had similarly failed to garner enough support in New Jersey and New York earlier in the year. This clause will allow previous nonviolent possession and use convictions to be reviewed and/or expunged for nearly 800,000 in-state residents.
Though Illinois will need to time to ramp up its recreational cannabis industry, the duo of Arcview Market Research and BDS Analytics estimates in the State of the Legal Cannabis Markets report that Illinois will hit $1.14 billion in annual sales by 2024, making it a top-10 state by aggregate annual sales in a couple of years. Recreational sales are set to start in Illinois on Jan. 1, 2020.
Image source: Getty Images.
Clearly, there's a lot of potential opportunity for vertically integrated operators to "make some green" as Illinois' cannabis industry ramps up. Here are four more brand-name pot stocks looking to make a name for themselves in the Land of Lincoln.
Two marijuana stocks that have placed a very specific emphasis on the Illinois market are Green Thumb Industries (GTBIF 0.01%) and Cresco Labs (CRLBF +0.04%). These multistate operators (MSO) are looking to maximize their presence in the state, with Green Thumb and Cresco expected to have the maximum allowable 10 retail locations open soon after the next decade begins.
Meanwhile, Curaleaf Holdings (CURLF +0.05%), the largest U.S. MSO by market cap, is attempting to buy its way into the lucrative Illinois market. In mid-July, Curaleaf announced a deal to buy privately held MSO Grassroots for what was $871 million in cash and stock, when announced. The thing is, Grassroots has four open locations in Illinois and will be allowed to open an additional four, including two more in Chicago. Thus, if and when the Grassroots deal closes, Curaleaf will have control of eight retail locations in the state.
Lastly, there's Acreage Holdings (ACRGF +0.00%), which has a small growing and retail presence in Illinois, but is liable to expand its reach if the Land of Lincoln pays dividends. Acreage has a presence in more states (20) on a pro forma basis than any other MSO, so it's fair to say that its attention and expensing has been spread a bit thin as it looks to secure cultivation, processing, and retail licenses in as many legalized markets as possible.
The point is that Green Thumb, Cresco, Curaleaf, and Acreage are among the leaders in retail licenses held and national brand presence, and they should all be vying for market share when the green flag waves in less than three weeks.
On the other hand, Green Thumb and Cresco, which have arguably invested the most in securing a sizable presence in Illinois, could find the sledding tough in a state that, arguably, isn't set up for success.
One of the biggest concerns for legal operators in Illinois is that, like California, municipalities were given the choice of approving or denying recreational retailers from setting up shop. Overall, roughly 4 out of 5 municipalities chose to deny retailers the right to sell adult-use weed in their community, at least for the time being. With so few communities actually allowing legal weed sales, this could wind up rolling out the red carpet for black market producers to thrive.
Just as important, regulators in Illinois are limiting the number retail stores that can be opened by a license holder to 10. According to Marijuana Business Daily, this maxes out the number of retail locations that can be open on Jan. 1, 2020 to 110. Even though Illinois plans to award another 75 retail licenses on or before May 1, 2020, this only sets the state up for 185 maximum retail licenses next year, or about 1.5 dispensaries open per every 100,000 residents.
If you've been following the rollout of the cannabis industry in Canada, you're probably well aware of what happens when an inadequate number legal pot shops are present. Ontario, which is home to almost 40% of Canada's population, had just two dozen retail stores open at the one-year anniversary of legalizing recreational weed sales (Oct. 17), working out to one store per 604,000 provincial residents. As a result, the illicit market has thrived, and that's likely going to be the case in Illinois, too.
The Land of Lincoln certainly has the tools to be successful, and pot stock investors could wind up netting a healthy profit over the long run. But in the interim, caveat emptor, cannabis stock investors.