Cannabis dispensaries are opening at a record pace in recent weeks and months. And that massive expansion is being driven by companies that have recently IPO’d and creating more opportunities for those that want to.
The U.S. cannabis industry is growing at a rapid pace, from $8.5 billion last year to at least $11 billion this year. Here at the National Institute for Cannabis Investors, we estimate it will grow to $16.5 billion just next year.
To meet that demand, the industry needs one thing more than anything else: dispensaries. Delivery will grow in importance in the cannabis industry, but the primary method by which medical and recreational cannabis users get their products is through special-purpose retail stores.
In some states, like California, opening a dispensary is not difficult. There are over 450 dispensaries in California, and the number is growing not just from newly-opened dispensaries but from former “grey-market” stores that California has ordered to either get legal or get out.
Most states, however, have worked to limit dispensary licenses. In those states, dispensaries are a coveted property – just a license, without an opened store, can sell for millions of dollars, as was the case recently in New York.
That’s changing in a hurry.
Of late, states have been giving dispensaries approval to open at a record clip, bringing massive profits to the owners of the dispensaries and helping states bring cannabis closer to customers while dislodging the illicit market.
But, even more importantly, the change is secretly fueling this, much more lucrative segment of the industry…
Dispensary Boom Creating Billions to Enable the Next Class of IPOs
Unlike the earlier days of dispensary openings, multi-state operators are increasingly grabbing licenses as U.S. states expand their programs. And these aren’t the types of cannabis companies with small, regionally focused ambitions. Most often, these are companies that either want to become major players in a U.S. market that is going through a key and lucrative transition period – or they want to become attractive buyout targets as big business’ interest in cannabis reaches record levels.
From what my researchers and industry contacts have been seeing, states like Nevada, Ohio, Massachusetts, New Jersey, and more increasingly are favoring large companies over other applicants in their awards. Many of these got that way recently through mergers and acquisitions or by going public through an IPO.
For example, Nevada recently awarded 61 new dispensary licenses – from 450 applications – to complement the 63 existing ones. More than half of those licenses went to a small handful of companies that were either publicly traded, including several that recently IPO’d, or were rumored to be considering going public. Green Growth Brands, for example, garnered seven new Nevada licenses.
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Green Thumb Industries, a cannabis company already worth more than $1 billion, earned one of only six new medical licenses in New Jersey, which plans to pick up work on recreational legislation on January 9 after failing to pass an effort as expected on Friday (the last day of its 2018 legislative session).
MedMen Enterprises, which went public in 2018 through the increasingly popular RTO (reverse takeover) method, also expanded its footprint this month. The latest MedMen store is its first in Arizona, bringing the total number of open dispensaries under the brand to 16. It has several additional high-profile dispensary openings planned for 2019, in part because of the money it raised going public earlier this year.
NICI Portfolio Picks Are Already in on the Action, Driving More Openings
As you may know, the Institute’s Cannabis IPO Insider service recommends the IPO stocks with the best potential to create fast, life-changing gains for everyday investors.
And two of the picks in our current Insider portfolio are all over this dispensary expansion trend.
One of those companies, among my favorites in the entire industry, was an early licensee in Ohio and is picking up a new dispensary license in Massachusetts soon thanks to its acquisition deal with a smaller firm. The previously mentioned Green Growth Brands took the same approach in Massachusetts. It picked up three dispensary licenses by buying Just Healthy LLC in recent weeks. Its fleet of dispensaries, spread out over several states, has grown to 12 from having just one a little over a month ago.
Another of our Insider portfolio picks has opened five dispensaries itself, just in the past month. It now operates more than 30 of them across the United States.
In addition to having the resources to win licenses directly from the state, these recently IPO’d companies are using the cash they raised to acquire licenses and operating dispensaries from independent operators. And, with these licenses, that means more revenue – in some case, it’s a lot more revenue.
All of this shows how rapidly the cannabis industry is consolidating. And the winners are being determined largely over the next six months to a year.
Companies that recently IPO’d are going to represent the lion’s share of the winners when all is said and done. The same can be said for those who have consolidated.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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December 18 2018