Things certainly did not go as expected in 2019 for the cannabis industry. It was expected to be a year of breakthroughs, with growth in Canadian recreational weed sales and additional U.S. legalizations pushing the broader industry toward profitability. But by year's end, the vast majority of cannabis stocks remained unprofitable, and pot stocks took a beating.
The good news, if there is any to be had, is that growth in the most lucrative marijuana market in the world, the United States, should pick up significantly in 2020. The upcoming November elections should see a number of new states legalizing medical or recreational cannabis, and core markets like California are believed to be making progress in combating their significant black market presence. This potentially puts U.S. multistate operators (MSO) in great shape to realize an increase in sales in 2020.
What MSOs are best positioned to realize these gains? While that'll depend on the states they choose to pursue and the number of stores per state, the following six MSOs have the broadest presence in the United States.
Acreage Holdings: 20 states
On a pro forma basis (i.e., assuming all pending acquisitions close), Acreage Holdings (ACRGF) holds the distinction of being the broadest-reaching MSO, with a presence in 20 states and the ability to open as many as 88 dispensaries. As you can imagine, Acreage has many of the key markets covered, with a presence in California, Washington, New York, Illinois, and Florida, to name a few states. Although Acreage is expected to lose money in 2020 as it spends aggressively to expand its reach, sales are projected by Wall Street to rise by 125% to $345 million.
Yet, it's not the company's reach that it's best known for. Rather, it's Canopy Growth's contingent-rights offer to acquire it in a cash-and-stock deal if and when the U.S. federal government legalizes marijuana prior to 2027. You could rightly say this has tied Acreage's future to that of Canopy Growth.
Curaleaf Holdings: 19 states
In terms of retail presence and aggregate sales, Curaleaf (CURLF 7.38%) gets the nod as the top-tier MSO. Assuming its pending acquisitions of Select (via Cura Partners) and privately held MSO Grassroots close, Curaleaf will have a presence in 19 states, as well as the ability to open up to 131 dispensaries. Right now, there isn't a multistate operator with more open locations.
What makes Curaleaf especially intriguing is that it could be the first publicly traded cannabis company to reach $1 billion in annual sales, at least according to management. Of course, this is going to depend on whether Curaleaf can close its pending transactions, as well as get a lift from recreational legalizations from the likes of New Jersey and Arizona. Only time will tell, but Curaleaf should have the inside path to $1 billion in annual sales.
Harvest Health & Recreation: 13 states
Next up is Harvest Health & Recreation (HRVSF), which expects to have a pro forma presence in 13 states, and should have the ability to open around 130 licenses, according to its most recent investor presentation. Similar to Curaleaf, Harvest Health is particularly anxious to find out if Arizona will legalize adult-use weed in 2020, as no dispensary operator has a larger presence than it in the Grand Canyon State.
Harvest Health should also see its sales positively impacted by having signed an agreement with the Asian American Trade Associations Council in June. The deal allows Harvest Health to provide its Colors, CBx Essentials, and Harvest Health-branded cannabidiol (CBD) products in more than 10,000 convenience stores and gas stations throughout the United States. Eventually, Harvest Health aims to up its reach to perhaps 30,000 convenience stores and gas stations across the country.
Green Thumb Industries: 12 states
Fourth on the list is Green Thumb Industries (GTBIF 6.82%), which has a pro forma presence in 12 states and enough retail licenses to open eight dozen retail locations that can reach up to 151 million people in the United States. Green Thumb currently has 40 open retail locations, as of its most recent investor update.
Perhaps the most intriguing markets for GTI, as the company is known, are Nevada and Illinois. Illinois commenced adult-use sales on Jan. 1, 2020, and GTI is likely to maximize its retail presence in the Land of Lincoln with (eventually) 10 dispensaries. Meanwhile, Green Thumb bought its way into Nevada with the Integral Associates purchase. This gave GTI eight licenses in the Silver State, as well as the only presence on the Las Vegas Strip.
iAnthus Capital Holdings: 11 states
Although it's a lesser-known MSO compared to the other names here, iAnthus Capital Holdings (ITHUF 10.88%) expects to be operating in 11 states, have 817,000 square feet of cultivating capacity, reach 121 million Americans, and be able to open up to 68 dispensaries. As of late January, iAnthus had 30 open retail locations, along with more than 190 licensed dispensaries carrying its products. iAnthus is primarily concentrated in the Southwestern and northeastern U.S., with a presence in Florida, too.
Though profitability could be in the cards for iAnthus this year, it's also the only MSO with a serious red flag. You see, iAnthus appears to have grossly overpaid for its all-stock deal to buy MPX Bioceutical, causing its goodwill recognition to balloon to $440 million. That's close to double iAnthus' current market cap. At the moment, more than half of iAnthus' total assets are tied up in goodwill, which might suggest a writedown just waiting to happen.
Cresco Labs: 11 states
Finally, there's Cresco Labs (CRLBF 2.76%), which will have a presence in 11 states on a pro forma basis. Even following the termination of the VidaCann acquisition, Cresco Labs still has access to 31 retail licenses, with 21 currently open locations. Similar to GTI, Cresco is angling to set up as large of a retail presence as possible in Illinois following the commencement of adult-use sales last month.
Unlike the other MSOs here, Cresco Labs has become less a play on national breadth and more focused on California, the largest pot market in the world by annual sales. Having closed its all-stock Origin House acquisition -- Origin House was one of a small number of companies in California to hold a cannabis distribution license -- Cresco Labs now has access to more than 575 dispensaries in the Golden State. This access should be Cresco's primary sales driver for the foreseeable future.