3 High Growth Cannabis Markets To Watch Going Into The Second Half of 2020

3 High Growth Cannabis Markets To Watch Going Into The Second Half of 2020

During the last year, US cannabis firms have been reporting impressive growth and this is a trend that we expect to continue for the foreseeable future. One of the main growth drivers for the US cannabis market has been the opening of new markets or a change in regulation in existing markets (from medical to recreational).

Although 2020 has been a tough year for the global economy, the US cannabis industry has continued to record strong growth and we are favorable on how the industry has weathered the COVID-19 storm. We believe that the performance of the industry is a testament to the strength of the sector and find this to be of significance.

The U.S. is currently dealing with a number of important social justice issues and we believe that the country is reaching an inflection point. With elections only a few months away, we expect the recent issues to have a significant impact on the results of election and believe that the cannabis industry will be a beneficiary of this.

Many states are reeling from the fallout of COVID-19 and are looking for additional revenue streams. From sports betting to cannabis, we expect high-growth verticals to benefit from states’ need for additional tax revenue. In November, we expect to see a number of cannabis ballot initiatives in important markets and want to highlight some of the states that could benefit from this.

Arizona

Arizona is one of the largest medical cannabis markets in the US and is an opportunity to be aware of. In the 2016 elections, the state failed to pass a recreational cannabis ballot initiative and faced pressure from pharmaceutical firms like Insys Therapeutics. This year, the state will not have to worry about Insys after the former executive management team was indicted for illegal sales and marketing practices.

Although the Arizona cannabis legislation faced considerable headwinds in the 2016 election, 48% of voters were in favor of the ballot. If you look at markets like California and Oregon, which failed to initially pass recreational cannabis legislation, legalization initiatives that appear on a ballot after an initial defeat have proved to be victorious in the second time around.

Based on a new poll that was conducted by Marijuana Moment, approximately 65% of likely Arizona voters favors the legalization of recreational cannabis. This represents a 9% increase from last year’s poll and we are favorable on the improvement in sentiment toward recreational cannabis.

Vext Science, Inc. (VEXT.CN) (VEXTF) is a leading operator in Arizona and we expect the business to benefit from a change in regulation. During the last year, the company has expanded into new markets like Oklahoma and this is a market that has been generating significant traction.

According the Oklahoma Tax Commission, the state has generated almost $300 million of cannabis revenue in the first five months of the year. During the COVID crisis (from March to May), an additional 25,000 patients have enrolled as a medical cannabis patient in Oklahoma and we are favorable on how the market has continued to grow during these times.

Over the next year, we expect Vext to record strong revenue growth and believe that the management team is bringing the business down a path to profitability. We find the risk-reward profile to be attractive at current levels and believe that Vext is an emerging opportunity to be aware of.

New Jersey

Another emerging US cannabis market that we are excited about is New Jersey. In late 2019, the state’s two legislative houses voted in favor of putting a constitutional amendment on the November ballot that would legalize recreational cannabis. We believe that the passing of the legislation would prove to be a catalyst for the US cannabis market due to its proximity to New York.

According to a Monmouth University poll that was published in April, more than 60% of New Jersey voters are in favor of the legalization of recreational cannabis. We believe that the fallout from COVID-19 will play a role in the legislation gaining additional support and expect to see the ballot initiative pass in November.

Although New Jersey is not a large state from a size standpoint, it is a dense market with a large population, and we find this to be significant. There are a few large US cannabis companies that have acquired strategic cannabis assets in New Jersey, and we expect to see increased activity in the state in the back half of the year.

New York

For a few weeks, New York was the epicenter of the COVID-19 epidemic and was significantly impacted by the spread of the virus. The costs that are associated with the state’s fight against the virus are massive and we expect this to speed up the legalization of recreational cannabis in New York.

New York Governor Andrew Cuomo has already indicated a willingness to legalize recreational cannabis and we find this to be a significant potential growth catalyst for the entire US market. A few years ago, the state issued a limited number of medical cannabis licenses and we have been favorable on this aspect of the market.

Once recreational cannabis is legalized in New York, the companies that have been issued medical cannabis licenses will be well positioned to capitalize on it. We believe that having an early mover advantage in New York would provide a business with a major advantage and we are bullish on the long-term opportunity that is associated with the market.

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Authored By

Anthony Varrell

Anthony Varrell is Managing Director of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Published at Mon, 15 Jun 2020 11:38:33 +0000

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