The United States of Cannabis Vol. 1 – Nevada

The Highest Value Cannabis Markets in America

The U.S. legal cannabis market is dynamic, fast-growing and always evolving. There are currently 12 states in America where cannabis where cannabis is legal for medical use and recreational cannabis is decriminalized.

To help you figure out where the opportunities lie, we’ve put together this investing series looking at the most promising states for investing. The map below highlights the top 10 states in America by annualized cannabis sales.

Annualized Sales by State ($MM)

We’ll take you through the history of each market, the positive trends and a look at what the future may hold for each.

We start our journey in Nevada, the home of Las Vegas.

Nevada – A History Lesson

Nevada legalized medical marijuana in 2013 and recreational marijuana in 2016.

The first dispensaries were opened in July 2017.

In December 2018 Nevada issued 61 additional recreational marijuana licenses in the state, with 30 of them in Clark County.

About 75% of marijuana operations exist within Las Vegas city limits in Clark County.

Clark County also accounted for a majority of sales in the state, making up 83% of sales in 2019, however with the outbreak of COVID-19 and falloff in tourism, sales in Clark County fell to 70% of statewide sales in May 2020.

Nevada has been one of the strongest recreational cannabis success stories in the U.S. with sales exploding higher shortly after legalization.

In the first year of recreational legalization sales in Nevada were running 40% above Colorado in year 1 even with Colorado benefitting from heavy tourism due to being the first of all 50 states to legalize cannabis recreationally.

On a per capita (per person) basis, Nevada has the highest sales in the U.S. at this stage in its legalization.

Only Colorado and Washington are higher and they fully legalized cannabis half a decade earlier.

Per Capita Cannabis Spending by State

Source: State by State Regulatory bodies. Grizzle Estimates

Per capita cannabis spending in Nevada will undoubtedly increase from here as the industry is still in its infancy.

There is 50% upside to the size of the Nevada market if per capita spending simply approaches levels in Colorado, a state with much weaker tourism trends.

Nevada – A Tale of Tourism

With a majority of dispensaries and a vast majority of sales taking place near the Las Vegas strip, tourism is the main driver of cannabis sales in Nevada which makes it a unique and very attractive market.

Investors will have to put up with more volatility due to the typical economic ebbs and flows of Las Vegas tourism, but in return, you can own a piece of potentially the most profitable cannabis market in America.

For one, Las Vegas is seeing strong visitor growth with both visitors and convention attendance up 17% and 50% in the last 10 years.

Yes tourism has cratered due to the ongoing pandemic, but once the virus is behind us, tourists will come flooding back to the sunset strip.

Las Vegas Tourism Trends are Strong

Source: https://res.cloudinary.com/simpleview/image/upload/v1583363280/clients/lasvegas/Historical_1970_to_2019_ada0164b-b599-4fac-8f7a-eb26bfe17187.pdf

Ultimately Cannabis retail profitability comes down to volume and spending and Vegas has these in spades.

To show you how attractive the Nevada market really is we’ll compare it to Massachusetts, the fastest growing and most profitable legal state in the Northeast.

From a volume point of view, being in a tourism hotspot means higher foot traffic.

Dispensaries on the outskirts of the Vegas strip are seeing 5x higher foot traffic than the average dispensary in Massachusetts and that is saying something.

Massachusetts was the first state in the Northeast to legalize recreational cannabis and there is still a serious lack of dispensary locations meaning foot traffic is already higher than it will be long term.

Foot Traffic in Las Vegas vs the Average Massachusetts Dispensary

Source: Planet 13 Investor Presentation, MA Cannabis Control Commission

Bottom Line: Nevada is seeing potentially the highest daily foot traffic in the U.S., a major selling point.

Another big advantage of a tourism-driven cannabis market like Nevada is how much consumers spend.

On an average visit to a Las Vegas dispensary, tourists have been spending $90.

This is 125% more than the amount spent on an average visit in Massachusetts, another market with very strong growth.

Average Spent per Visit to a Dispensary

Source: MA Cannabis Control Commission, Planet 13 Investor Presentation

When you couple good foot traffic with big tickets, you have a recipe for a profitable market.

The COVID-19 Catch-Up Trade

The Coronavirus pandemic’s effect on the Nevada economy cannot be overstated.

Visitor traffic has fallen off a cliff, with tourism at only 1/3rd of typical levels as of the latest data in June.

Though things may look bleak for the state’s cannabis market, investors have a huge opportunity to buy local operators at what will likely turn out to be discounted prices.

Tourism will return when the Pandemic is all over and local operators will once again generate industry-leading dispensary profits.

There are three publicly traded cannabis stocks with significant exposure to the Nevada market:

  1. 1933 Industries (CSE:TGIF, OTCQX:TGIFF)
  2. C21 Investments (CSE:CXXI, OTC:CXXIF)
  3. Planet 13 Holdings (CSE:PLTH)

Capital 10X had the opportunity to interview Paul Rosen CEO of 1933 Industries to discuss the Nevada cannabis market:

Why is Nevada such an attractive market for Cannabis?

Paul Rosen: Nevada is one of the premier states to have a cannabis operation, it comes down to a few key metrics: supply, demand and whether there’s an adult use program.

Nevada has an adult use program, there’s great demand because of the massive tourism that comes into Nevada, and there’s a relatively limited amount of suppliers. So the supply/demand economics are favourable.

What is the demand upside when tourism returns?

Paul Rosen: Vegas is still not operating at full capacity, the hotels are open and they are busy but they are still operating under COVID protocols.

So as COVID recedes and the public health risk associated recede we’ll expect Las Vegas to return to peak capacity. Peak capacity only means peak demand for the cannabis industry.

What is the biggest catalyst investors should look for in Nevada?

Paul Rosen: The biggest catalyst for all U.S. operators is anticipation of some form of  harmonization between state and federal laws. Whether it’s going to be in the stimulus bill that is before congress, or whether possibly Biden will win the election and begin to navigate a path towards legal cannabis in the United States. So that really is the multiplier event for the entire industry and it applies to Las Vegas as much as anything else.

On a micro level just a return to normalcy post COVID, this really is the biggest stimulus for Las Vegas economy. When you marry that up with the macro anticipation of federal reform you really have a lot of reasons to be optimistic.

What is 1933’s Overall Strategy for Nevada? 

Paul Rosen: Profitability as soon as possible, that’s what I think all cannabis companies are focusing on right now. Maximizing revenue, being very aggressive on minimizing expenses and charting an expedient path towards profitability.

1933 Industries has made a strong pivot towards profitability over the last 2 quarters, cutting non-operating expenses by 46%. The company has recently announced a $5 million private placement.

Given the long term positive trends playing out in the Nevada market, there are likely still values to be found for investor’s willing to dig a bit deeper.

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1933 Industries 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.

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Real Couturier
Real Couturier
August 12, 2020 5:15 pm

GFI (goforit) 1933 Industries.

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