Canada is the first industrialized country in the world to legalize marijuana. Because of this, many investors are focusing here for their next cannabis play. But what about California cannabis?
Canada's size can trick you; its vastness makes it easy to believe that sales here will outpace all other legal jurisdictions. This, of course, would help to make your cannabis investment more lucrative.
While there is absolutely nothing wrong in looking to Canada for investment opportunities, investors shouldn't forget about the actual largest cannabis market in the world: the US state of California.
With all eyes on Canada, we're going to bring attention back to California cannabis because the pros of investing in this market are plentiful.
There are several reasons why companies that operate in California may deliver better than those in Canada.
The first is sales. In 2018, total California marijuana revenue was approximately $2 billion USD. $1.2 billion of this was for recreational sales and the rest for medical sales.
This is the tip of the iceberg compared to what is expected of this state. As Matt Karnes of GreenWave Advisors told Benzinga:
“As the state works through its ‘growing pains’ with respect to licensing procedures and as final regulations are implemented, we expect an acceleration in revenue growth for 2019 and beyond to reach its full potential of $6.5 billion by 2022.”
Further, the Golden State now has over 650 licensed retail locations and that figure is growing steadily.
For perspective, though still not even a year into service, Canada's marijuana sales have been paltry by comparison:
The country is expected to "generate up to $6 billion in sales" by 2022, however, it is looking more in line for "less than $500 million in total revenue on an annualized basis through the first 3.5 months of sales data".
In other words, both jurisdictions are still finding their feet with a newly legalized industry, but that hasn't stopped California cannabis from making four times what Canada is going to make in one year. Herein lies a massive consideration for investors.
California Cannabis - Growing Pains
California is not an easy state to be a licensed producer so investors should enter this market aware of all the risks. The "growing pains" alluded to above, include:
- problems with heightened taxes
- distribution license issues
- a black market that still experiences lots of attraction which takes a bite out of the potential of legal sales
But even with those issues stifling full sales potential, sales in the Golden State have belied Canada's.
Keeping that in mind, here are two California cannabis companies that are dominating this market.
MedMen Enterprises (CSE:MMEN)(OTCQX:MMNFF)
For $2.19 USD on the OTC, MedMen is offering consumers a cannabis experience that makes it the "Apple store of Pot". It has eight dispensaries in the state, four more in New York and two in Nevada.
The brand's appeal is serving it well—MedMen has put a lot of emphasis on its pristine stores that give customers a professional experience once they walk in the door. Its slick interiors liken to Apple's stores and this is reflecting positively on sales. Because not only does this help to legitimize cannabis for those who are new to it, in a market that sees many dispensaries look the same, it also helps MedMen stand out.
Sales have been good: the company reported Q1 growth of 1088% and figures of $21.5 million.
However, this is a company still in need of working capital and it recently reached out to Gotham Green to get it. Securing a $250 million investment meant diluting shares, but the long-term gain from this is worth the squeeze.
It is still early days for any brand operating in the US's biggest cannabis-loving state. And with teething problems, MedMen has not made profits, but that doesn't mean it won't.
There will likely be no more share dilution in the near future, and from this point, there’s a lot of promise to this marijuana stock. Especially considering the low-price these shares are currently experiencing.
Origin House (CSE:OH)(OTCQX:ORHOF)
Origin House is a Canadian company which is in the midst of a merger with US's Cresco Labs (CSE:CL) (OTCQX:CRLBF). The Chicago-based cannabis producer is acquiring the company in an all-stock deal worth $1.1 billion USD.
What this means for potential investors is that there is about to be a North American cannabis conglomerate established. And this conglomerate is going to focus heavily on the US’s largest legal market—California.
The company's Chairman and Chief Executive Marc Lustig, spoke of the importance of this market:
“This transaction is directly aligned with our strategy to build a leading portfolio of cannabis brands in California and to rapidly and accretively take those brands to the rest of the US market, as well as the Canadian market.”
By securing dominance in this state, the outward sprawl will be easy for Origin and Cresco. All-in-all, the company is in line to “supercharge its growth” across the US.
Origin House shares are currently selling for $8.28 USD on the OTC and are up roughly 4% to press time. Considering what lies in wait for Origin, investors can have a piece of a multi-state US cannabis conglomerate which is already capitalizing on the world's biggest market for marijuana.
California is one of the most important and lucrative markets for any cannabis company looking to dominate. With sales surpassing $2 billion last year, it represents the mecca for cannabis producers.
Investors looking to get into the cannabis sector, shouldn't overlook the potential of those California cannabis brands that have a foothold here.
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