The Florida Marijuana Market – Weekly Recap (February 7th, 2020)

Capital 10X breaks down the Florida marijuana market by looking at:

  • Weekly Market Moving News
  • Trends in the Florida Marijuana Market
  • Weekly Competitive Analysis

In a rapidly expanding market investors need to stay on top of who is growing like a weed and who is being squeezed out.

Weekly Florida Marijuana Market Moving News

Vertical Integration Has Its Court Date

Last week, a brief was filed with the state’s Supreme Court by the Florida Department of Health (DOH) to uphold the “vertical integration” law that currently regulates the state’s marijuana industry.

The law has been already been declared unconstitutional by two lower courts, so this is the Florida DOH’s final attempt.

The general argument within the lawsuit is that the law is unconstitutional, only benefiting large corporations who have the resources to operate as vertically integrated and who can afford to pay up to $50 million for an MMTC license.

The law has been already been declared unconstitutional by two lower courts, so this is the Florida DOH’s final attempt. The case is set to be heard on April 22. However, the government has already introduced other legislation that may save them from losing a third court battle.

With the outcome of this case leaning towards opening up the Florida market, it will be big news for the players in this space. They would likely see an inflow of MSOs as well as small “craft” growers, further increasing the stiff competition.

Leafly Reports Marijuana Jobs Numbers

Leafly released a report looking at the economic benefits of the marijuana industry across the U.S. For a state that is medical-only, Florida certainly held its own.

The state showed 93% year-over-year growth, with total jobs reaching 15,498 (5th highest in the country). The substantial growth was driven largely by the legalization of smokable products.

The Florida marijuana market also boasts the largest medical patient base in the country, with it now topping over 300,000 patients. With estimated gross annual sales in excess of $800 million, the state is in spitting distance of Oregon and Washington, who have adult-use programs as well. Clearly the Florida market is primed for full legalization.

With marijuana federally illegal, the U.S. Bureau of Labor Statistics doesn’t release data. Instead, Leafly looked at state regulatory data as well as data compiled by various consulting firms.

Trulieve Builds Backing

PI Financial analyst Jason Zandberg released an update on its coverage of Trulieve, reiterating a BUY rating with a $20 price target after a visit of Trulieve’s Tallahassee operations. The target is based on FY21 estimates and an EV/EBITDA ratio of 8x.

For Q4 PI is forecasting $82.2 million in sales with EBITDA of $31.2 million. This would represent QoQ revenue growth of 16% and EBITDA growth of 24%. For fiscal 2020, PI is forecasting revenue of $400 million and EBITDA of $153 million.

Trends in the Florida Marijuana Market

This week one new dispensary was added, while the patient count increased 0.9% compared to 0.7% last week, adding 2,913 new patients. Once again, we’re seeing no signs of slowing growth. Competition is easing slightly with more patients being added while there is a slowing in dispensary growth.

Growth of Florida Patient Count and Dispensaries

Source: Florida OMMU.

While patient count continues to grow, it will be important to watch consumption trends to see if patients are continuing to consume at their sky-high rates.

This week’s overall sales and sales per patient for extracts jumped in a meaningful way, reaching the highest levels in 2020 so far. This is a good sign for the market after it looked like sales may have been settling lower over the last 4 weeks.

Total sales and sales per patient continued on a similar upward trend for flower sales, reaching a record weekly maximum for a second week in a row.

With both extract and flower sales showing strong weekly numbers, clearly the market demand is very healthy.

Marijuana Concentrate Consumption

Source: Florida OMMU.

Marijuana Flower Consumption

Source: Florida OMMU.

Weekly Competitive Analysis

Now turning to the companies themselves, the following three graphs break down the market share of dispensaries, marijuana concentrate sales, and marijuana flower sales.

This past week, one new dispensary was added by Surterra, leaving only small changes. For the second week in a row, we saw big changes to the market share of flower and extract sales.

After week-over-week losses of 4.6% and 5.7% for extract and flower sales for Trulieve, they had a big bounce-back week. They added 3% and 7.4% of market share back in each category. In fact, Trulieve reached record weekly flower sales of 11,300 oz.

Trulieve’s gains this week were losses for Liberty Health (-1.7%, -5.25%) and AltMed -0.8%, -1.8%) among a few others. This is a small pullback for these companies compared to the growth they have shown in 2020 so far.

As a whole, investors looking to buy into the growing Florida market should look for companies with substantial market share. These players will capture an outsized portion of the market’s growth.

Market Share of Dispensaries

Source: Florida OMMU.

Market Share of Marijuana Concentrate Sales

Source: Florida OMMU.

Market Share of Marijuana Flower Sales

Source: Florida OMMU.

Diving a little deeper, if you want to see the best return on your capital, you should invest in efficient operators. These will be the companies that generate a higher share of sales compared to their share of dispensaries.

Opening and operating dispensaries is very capital intensive. A company with a lot of stores but fewer total sales is using your capital inefficiently, signalling there are likely better investments.

The following graphs look at dispensary efficiency (x-axis) and market share (bubble size). Investors should look for companies that operate their dispensaries efficiently (highest ratio) while still capturing a meaningful portion of the total market (largest circle).

Market Share and Store Efficiency for Extract Sales

Source: Florida OMMU.

Market Share and Store Efficiency for Flower Sales

Source: Florida OMMU.

Companies with ratios greater than 1 are generating a higher proportion of total sales compared to their proportion of dispensaries — this signifies efficient operations. The size of the circle indicates how substantial their operations are relative to their peers. 

Invest in companies with higher efficiency and greater market share (large circle). For example, Trulieve and AltMed punch above their weight in extract sales, while Trulieve, AltMed, and Liberty Health dominate the flower category.

Investors can get a more detailed view of how a company’s sales are divided between extract and flower in the following graph.

Extract and Flower Sales Per Store

Source: Florida OMMU.

Wrapping things up, we wanted to look at how companies have been performing over the medium term. This last graph shows the change in total sales this week compared to the prior 4-week rolling average.

Any companies making significant gains could be up-and-comers to watch if you believe in the upside of the Florida market.

Sales Change for The Week Ending February 7th

Source: Florida OMMU.

This was another big week of increasing flower sales for most companies. It’s clear with increasing total sales and the weekly changes that production capacity continues to improve.

For any investors looking to buy into the Florida market, the following graph shows which companies may present an entry point. Keep in mind, only Trulieve and Liberty Health offer largely pure-play exposure to the market.

Weekly Stock Performance

Source: Florida OMMU.

iAnthus Capital Holdings is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Evan Veryard
Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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