The New Year marked the beginning of recreational marijuana sales in Illinois. The state was already seeing a boom in medical marijuana, which it legalized in 2013, and now the recreational market is flourishing, too. Two marijuana companies, Green Thumb Industries (OTC:GTBIF) and Cresco Labs (OTC:CRLBF), are taking full advantage of the new legal cannabis market.

Illinois offers enormous potential

Illinois residents showed their love for marijuana products when sales soared to $39.2 million in January, the first month of legalization. The sales numbers have been strong since then, with $35 million in February and $36 million in March. April sales were strong at $37.3 million -- more than expected in a month of full lockdown -- hinting at the strong demand in the state. 

Illinois highway sign with a marijuana leaf on it.

Image source: Getty Images.

Data by BDS Analytics shows Illinois cannabis sales exceeded $188 million in the first quarter of 2020, including $110 million in recreational sales and $78.2 million in medical cannabis sales. Currently, the state has a population of 12.6 million and operates 54 adult-use dispensaries and 55 medical dispensaries. Meanwhile, Colorado, with a population of 5.8 million, recorded $451 million in legal cannabis sales in the first quarter of 2020. 

Illinois recorded another month of record sales in May at about $44 million. Of that, $34 million worth came from state residents, while out-of-state visitors contributed another $10 million. The state is bordered by Wisconsin, Iowa, Missouri, Kentucky, and Indiana; marijuana is still illegal for recreational use in all of these states. Illinois also recorded $32 million in medical cannabis sales in May.

Though store visits were limited in lockdown, curbside pickup and online home deliveries augmented sales.

Green Thumb Industries: Striking revenue growth from the new market

Green Thumb Industries, which operates 44 retail stores in 12 U.S. states, has a remarkable presence in the U.S. cannabis sector, with triple-digit revenue growth and positive profitability. 

The company is all set to grasp the opportunities from this new legal cannabis market. Management believes that if the Illinois market was able to generate such high sales even under lockdown and social distancing requirements, then the future looks bright for overall sales to reach $3 billion this year.

Given Green Thumb's leading position in the market and the successful rollout of its recreational cannabis products, Illinois should be a point of high returns. The company already operates seven stores in Illinois and has licenses for three more. It announced the opening of its eighth Illinois store, in Niles, on May 26.

Strong growth in the Illinois and Pennsylvania markets drove Green Thumb's 268% year-over-year growth in revenue, which reached $102.6 million in the first quarter.

Cresco Labs: Tremendous potential in the new market

Cresco Labs also showed off its revenue growth in the first quarter, with that metric up 215% year over year to $66.4 million. Most of the credit for this growth goes to three strong markets: Pennsylvania, Illinois, and California.

According to management, the Illinois market could grow to a $1 billion industry in its first year. Cresco Labs opened its sixth Illinois store in Danville in May. The company thinks the store, located in eastern Illinois near the Indiana border, is perfectly positioned to drive sales by pulling in customers from in and around the region.

Strong sales drove profitability for Cresco Labs in the first quarter, in which it reported positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of $3.2 million. Note that the adjusted EBITDA figures are "net of the impact of biological assets" -- in this case, cannabis. In other words, the fair value of the company's cannabis plants is excluded from the EBITDA figure.


What could 2020 bring?

While both companies could still see continued effects from the coronavirus pandemic on operations, both are financially capable of combating the crisis. Recent protests that have led to temporary store closures could also affect sales to some extent.

Interestingly, the illegal status of marijuana in the has U.S. made it hard for smaller companies to get financial support. For instance, MedMen Enterprises, troubled from financial burdens in January, had to use its stock as payment to its supplier. 

Green Thumb ended its first quarter with cash and cash equivalents of $71.5 million on the balance sheet, while Cresco ended the quarter with $68.6 million in cash and cash equivalents, enough to survive the coronavirus crisis. 

As of June 24, shares of Green Thumb have gained 4% year to date, while Cresco Labs and the SPDR S&P 500 ETF have declined by 39% and 6%, respectively. 

Despite rising sales and tremendous potential, some dark clouds loom over the Illinois market. The state is facing a supply shortage, and looking at the growing demand, it could threaten revenue in the coming months. 

According to Marijuana Business Daily, the coronavirus pandemic forced the state to delay the allocation of 75 business licenses for recreational cannabis stores. The state had received more than 700 applications for the 75 dispensary licenses that it was supposed to award by May 1. 

Now, with no sign of the pandemic retreating, it is hard to say when the licenses will be awarded, and that could lower future sales.

Looking ahead, Illinois won't be the only state to help Green Thumb and Cresco Labs see strong revenue growth. More states are attempting to legalize cannabis -- and with strong balance sheets, these two companies have room for expansion.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.