MSOs Positioning in the U.S. and 16 Stories from New Cannabis Ventures

This is a copy of the January 20th edition of our weekly Newsletter, which we have been publishing since October 2015.

Friends,

One of the most interesting panels at the highly successful Benzinga Cannabis Capital Conference in Miami this week was one that we moderated “Town Hall Panel: MSOs Respond To A Changing Landscape”, which included Kim Rivers of Trulieve, George Allen of Acreage Holdings and Steve White of Harvest Health and Recreation.

In contrast to the scenario in Canada a few years ago, when substantial amounts of capital were invested in companies lacking material revenue, investors in the multi-state operators are able to invest in companies already scaling up. The three companies represented on the panel generated a combined $45 million in revenue just in the most recent quarter.

Another difference between Canadian LPs and U.S. MSOs is that the LPs, at least in Canada, serve essentially a single market, while the markets a MSO serves can vary greatly. Trulieve, for example, is active now in California and Massachusetts after recent acquisitions that are small in scale initially and generates all of its revenue from Florida, where it has dominant market share. Harvest has generated most of its revenue in Arizona but has won licenses in Pennsylvania and is active in nine other states with planned expansion in three others. Acreage has a large footprint as well.

Investors should stay on top of state-by-state trends. On the panel, one thing was quite clear: The MSOs see California as a big opportunity now that the state’s new regulations are finalized. All three of the panelists and many other large MSOs, including several publicly-traded companies, are active in Florida, which saw some good news this week, as sale of dried flower will likely soon be permitted. Additionally, the cap on dispensaries could be eliminated, and this all comes as the new governor is rumored to be favoring full legalization in 2020.

While the New York medical market has been slow to develop, it has improved significantly, encouraging several publicly-traded MSOs to position themselves for a first-mover advantage in the state which is likely to legalize, though some initial guidance from Governor Cuomo this week was problematic, as cultivators may be prevented from owning retail stores. While we expect that this restriction will ultimately not be imposed, it serves as a reminder that things change fast in the cannabis sector, with each state having its own unique dynamics.

Finally, we think there is a reasonable debate that will develop regarding operating everywhere versus being good in selective markets. Jonathan Sandelman of Cannabis Strategies Acquisition Corp. raised an excellent point in an exclusive interview published on New Cannabis Ventures that the industry may not yet have a deep enough pool of talent and that there could be some execution risk consequently. Capital allocation, strategy, focus and execution will all play a role in the success of the MSOs in the years ahead.


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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:


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Sincerely,

Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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