On the first day of the new year, recreational cannabis became legal in Illinois. After less than a month, the new market is being heralded as a serious success story for the cannabis industry. Because of this, it's worth looking at what Illinois got right about cannabis legalization, and how investors can position themselves for strong returns from this new market.
Illinois is the sixth-most populous state in the US, and the second-most populous to legalize pot. More than 12.7 million Americans call the state home, making Chicago the nation’s third-biggest city. Illinois is also surrounded by states where cannabis remains (for now) illegal.
This alone makes it an important market for cannabis companies, but there's more to this story.
What Illinois Got Right About Cannabis Legalization
What makes Illinois unique in this case is that it's the first state to pass cannabis legalization through its legislature. It did this in June 2019, just six months before recreational products were available for purchase.
Prior to this, all other states made cannabis legal through voter referendum. By passing legalization through the lawmaking body, however, Illinois created an immediate framework to help guide cannabis companies.
According to the Motley Fool, Illinois's legalization process "may have just set the blueprint for other states to follow."
What's more, Illinois went with the “flip the switch” roll-out model. This is where the state allows existing medical cannabis businesses to start producing and selling for adult use. Applications for these businesses were short and mostly about zoning.
A lot of other states required existing medical license holders to go through a cumbersome new application process. This stunted the new markets in their infancy, while the Illinois market thrived right out of the gate.
On the first day of cannabis legalization, Illinois earned $3.2 million through more than 77,000 transactions.
By the end of the first week, it sold $11 million worth of cannabis.
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By day 12, it hit the $20 million mark.
This means Illinois had the second-most profitable cannabis legalization rollout in the US, after California. It beat Oregon in terms of first-week sales by about $1 million, despite having only 40 dispensaries selling adult-use cannabis at the time of legalization to Oregan's nearly 270 dispensaries.
According to Bloomberg, the state expects to fetch between $2 billion and $4 billion in annual sales once the industry has matured.
Cannabis Stocks Positioned in Illinois
A lot of cannabis stocks are vying for a slice of that $2–$4 billion pie, but only a few of them already have a seat at the table.
Two companies that have paid specific attention to the Illinois market are Green Thumb Industries Inc. (CSE:GTII) (OTCQX:GTBIF) and Cresco Labs (CSE:CL) (OTCQX:CRLBF) Both are pushing to have 10 retail locations open in the state, which is the maximum allowable.
Cresco also recently revealed that it completed its first harvest at the Lincoln, Illinois cultivation facility. The company previously controlled 25% of the state's medical market. Now, with the timely roll-out of recreational cannabis legalization, Cresco is ready to be a market leader.
Not to be outdone, Curaleaf Holdings Inc. (CSE:CURA) (OTCQX:CURLF) is buying its way into the Illinois market. In mid-July, the company spent $875 million to acquire Grassroots, the largest private vertically-integrated multi-state operator in the cannabis space.
Not only did this made Curaleaf arguably the world's largest cannabis company, but it also positioned Curaleaf in a number of key markets, including Illinois. Now the company controls eight retail locations in the lucrative state.
Takeaway
Already, 2020 looks to be a big year for cannabis. For now, a lot of speculation remains over which states will pass cannabis legalization next.
Whichever state goes next, investors should note how it goes about establishing the recreational market and which companies are positioned to capitalize.
Featured image: DepositPhotos © Fotofabrika
