The Florida Marijuana Market – Weekly Recap (January 31st, 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

Joe Lusardi, Curaleaf CEO, Discusses Florida Market Strategy

Curaleaf President and CEO Joe Lusardi discusses the MSO’s strategy in the highly competitive Florida marijuana market.

Lusardi details how Curaleaf’s cultivation capabilities will increase across 2020, including production targets, and how that will help them grow market share in the supply-constrained market. You can see how their Florida cultivation capacity stacks up against other operators in our review.

He also discusses their 2020 dispensary plans, thoughts on profitability vs. growth, and how legalization developments could affect the market (and when!).

Liberty Healthy Releases Strong Earnings

Last week Liberty Health Sciences released Q3 earnings and largely surpassed revenue expectations. Looking below the top line, margins also moved in the right direction, and they generated positive EBITDA for the first time.

Revenue Growth and Gross Margin Comparison

Source: Company Filings.

As the graph shows, LHS’ quarterly growth is surpassing that of Trulieve and its gross margins have now pulled in line. Their strong performance even spurred the naming of Victor Mancebo as CEO after he served as interim CEO since February.

However, we remind investors that while the quarterly growth is impressive, compared to Trulieve, which added $12.8 million in revenue quarter over quarter, they are still small in comparison.

Investing in Florida – Valuation Breakdown

Now that LHS has reported, we took a look at last quarter annualized EV/EBITDA and Price to Sales of the top investment opportunities offering exposure to the Florida marijuana market.

Price to Sales

Source: Company Filings.

EV/EBITDA

Source: Company Filings.

On a price-to-sales basis, iAnthus is the cheapest, however, this likely stems from the fact that their operations are not yet profitable (as shown by the negative EV/EBITDA).

Curaleaf is the most expensive by both metrics. This is largely due to the additional revenue sources from the Select and Grassroots acquisitions priced into the stock but not yet incorporated in their quarterly performance. After the acquisitions close, we expect P/S to drop, while changes in EV/EBITDA are yet to be determined.

Additionally, Curaleaf provides far greater exposure to other U.S. states and may be valued at a premium due to the greater growth potential this offers.

Both Trulieve and Liberty Health trade in similar ranges for both valuation metrics. We expect LHS price to sales to return to historical levels around ~5, and EV/EBITDA to decrease over time as their operations mature.

If you’re looking for maximum exposure to the Florida market, only Trulieve and Liberty Health offer (largely) pure-play exposure.

Trends in the Florida Marijuana Market

This week no new dispensaries were added, while the patient count increased 0.7% compared to 0.5% last week, adding 2,168 new patients. Once again, we’re seeing no signs of slowing growth.

We also saw a slight uptick in the patients per store with a week where no new dispensaries were added. We expect this to be a short pause before more stores open and the increase in competitiveness continues on.

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 largely levelled off. Notably, sales per patient looks to be approximately 20 mg THC lower than the historical average. This could be a temporary blip or a sign that patients are starting to consume smokables in favour of extracts.

Total sales and sales per patient continued on a similar upward trend for flower sales. In fact, it reached a record weekly maximum of 70.4 oz of flower per 1,000 patients, exceeding the previous weekly max of 69.2 oz.

As more flower product hits the market, we expect to see consumption continue to increase.

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, no new dispensaries were added, leaving the split unchanged. However, big changes were seen in the market share of flower and extract sales.

Week over week, Trulieve lost 4.6% and 5.7% market share in extract and flower sales. It’s unclear why there was such a massive drop.

It could be due to additional flower products becoming available elsewhere (reducing their stranglehold on the market), or it could simply be competition finally finding something that works. Either way, investors should watch next week’s numbers closer for a sign of recovery or things worsening.

Trulieve’s losses were gains for Liberty Health (1.4%, 2.8%) and AltMed (2.3%, 2%) among a few others. Both companies have been crushing sales since the start of 2020.

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, signaling 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 and Liberty Health dominate the flower category.

As expected with changes and market share with no changes in dispensary count, Trulieve also saw worsening store efficiency, while Liberty Health and AltMed both saw solid improvements.

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.

Once again, Liberty Health and AltMed continued to be the dominant performers this week with strong increases in their per store performance. This should bode well for their bottom line (increased margins with economies of scale).

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 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 The Week Ending Jan. 31st

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 is starting to come online in a real way.

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
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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