The Florida Marijuana Market – Weekly Recap (January 17th, 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 Market Moving News

Florida Recreational Legalization

A vote on legalization will have to wait for the midterms – unless it happens before then.

While everyone was hoping adult-use legalization in Florida would be on the ballot in 2020, it appears they will have to wait until 2022.

With support from over 67% of Florida voters and over 700,000 signatures for their petition, the appetite is there. However, the clock was against petitioners with a verification deadline of Feb. 1, along with numbers that might not have met the threshold. A vote on legalization will have to wait for the midterms – unless it happens before then.

This week Republican Senator Jeff Brandes filed a bill that would legalize adult-use marijuana and remove the current vertical integration required by cultivators in the space. A companion bill was subsequently filed by a democratic peer. While it’s unclear how the legislative body as a whole will respond, there is still hope.

Florida Cultivation Chops

After seeing questions swirl around the cultivation capabilities of different operators in the space, we wanted to look for more information around the quality of the flower being produced. We stumbled on this piece summarizing flower quality. While we can’t verify the accuracy ourselves, the review is detailed at a minimum.

We also wanted to remind readers about our comprehensive review of the cultivation capacity of the top players in Florida. We also found this was highly correlated to market share, even more so than dispensaries.

Market Share of Sales and Production Capacity

Source: Florida OMMU, Company Filings, Capital 10X Estimates.

Cresco Labs + Liberty Health Sciences?

In the last weekly, we speculated about the possibility of Cresco Labs [stock_market_widget type="inline" template="generic" color="default" assets="CL.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] acquiring Liberty Health Sciences [stock_market_widget type="inline" template="generic" color="default" assets="LHS.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] after the cancellation of the VidaCann acquisition and an auditor switch.

To help investors learn more, we took the time to interview Cresco Labs CEO Charlie Bachtell to find out more – you can see his response for yourself (jump to 11:40 for the LHS question). While it appears to be a no (for now), we honestly have to wonder if he didn’t play it too cool saying “I’m not too familiar with [Liberty].” Judge for yourselves.

Trends in the Florida Marijuana Market

This week two new dispensaries were opened by Liberty Health and AltMed. The patient count increased 0.5% compared to 1.3% last week, adding 1,554 new patients.

For the second week in a row, patients per store remained relatively flat. If this continues it will signify that the market is reaching a steady-state. We don’t believe this is likely, with most players in the market executing on plans to grow dispensary count in 2020.

Competitiveness will only increase.

Growth of Florida Patient Count and Dispensaries

Source: Florida OMMU.

Looking at overall consumption and consumption per patient, both sales and sales per patient increased for extract and flower sales. This is the second weekly increase and a sign of sales returning to normal levels after the holidays.

Extract sales seemed to reach their average steady-state levels that have been maintained since September. As more flower supply comes online, investors should expect flower sales to continue climbing. If total sales and sales per patient level off, it will indicate the market is no longer supply constrained.

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.

Overall, there were no notable changes, with no players losing more than 2.5% market share. The biggest gainers were GrowHealthy and AltMed, in both extract and flower categories.

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 [stock_market_widget type="inline" template="generic" color="default" assets="TRUL.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] and AltMed punch above their weight in extract sales, while Trulieve and Liberty Health dominate the flower category.

This past week for marijuana extract sales, Surterra saw a decrease in efficiency and market share, while AltMed jumped substantially. Looking at flower sales, Liberty Health and GrowHealthy saw their efficiencies increase. This is impressive considering they both added dispensaries, suggesting they had a solid rollout.

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 last month’s weekly 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 Week of Jan. 10

Source: Florida OMMU.

Notably, Trulieve, Surterra, and Curaleaf remained largely flat on the week. This comes after some more significant changes for these players last week. The biggest drop in sales was from VidaCann, which saw an 11.7% decrease in extract sales.

The biggest gainers this week were AltMed and GrowHealthy which appear to be making serious inroads in the flower category.

The absolute sales this week for GrowHealthy were nearly 1,400 oz, so this represents a substantial increase over the previous week’s 680 oz. AltMed’s increase appears to be partially driven by a low week in December sales, however they still saw an absolute increase of over 350 oz.

Like AltMed, Liberty Health’s increase in extract sales is driven by a one-time low week, however, extract sales still saw a modest increase.

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.
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iAnthus Capital Holdings was 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 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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