The U.S. Has A De Facto Legal Status
With recently passed regulation in several states, it is now far easier to count the number without some form of cannabis legalization than the ones with. In fact, you can almost count the six states that are still 100% illegal on one hand. With the passage of laws in Virginia and New Jersey, the number of states with fully legalized cannabis stands at 16, more than double the number without, with a full 26 allowing medical use and another 2 decriminalized. The bottom line is that, even without federal regulation, the U.S. is operating in a state of de facto legalization and one that we think will soon come to an end. When it does the U.S. pot industry will truly bloom.
Two More States Legalize Recreational Use
Two states legalized cannabis for recreational use in the final week of February. The first, New Jersey, voted overwhelmingly in favor of legalization last fall but it is only now that Governor Phil Murphy (D) is signing legislation into law. The law will allow individuals to possess up to 6 ounces and set up provisions for state-licensed dispensaries. According to the release, it will probably be a year or more before state-sanctioned operations will be up and running.
The second is Virginia. Virginia legislators reached a deal in the final hours of February that would bring legal cannabis to the state. The bill is yet to be signed into law by Governor Ralph Northam (D) but he is favorable to the industry. The final details of the bill won’t be hammered out until next year but the goal is to end racial disparity in the treatment of offenders as well as generating revenue. The government of Virginia thinks the bill could generate upwards of $1.5 billion in annual sales within 5 years.
The news has the entire cannabis complex moving higher but the U.S. multi-state operators are in the best position to reap the rewards. With 25 stores in 6 states, MedMen Enterprises (OTCMKTS:MMNFF) not only has the experience but the existing infrastructure to build on. Add in the expectation of full U.S. legalization and this company is set up for exponential growth not only in new jurisdictions but within its current operating footprint. MedMen has more than 3 times the number of licenses than operational stores which means it has an easy path to growth. To make sure we leave you understanding the kind of growth we're talking about, the U.S. cannabis market is worth about $20 billion right now and expected to grow to over $100 billion with Federal regulation.
Cresco Labs Isn’t Waiting For Federal Regulation
While MedMen has been sitting around over the past year Cresco Labs (OTCMKTS:CRLBF) has not been. The Chicago-based company is another multi-state operator and one making a beeline for the top spot. It just made two acquisitions that bring its retail presence to 24 dispensaries with 5 more licenses to count on at least. The latest deals cement the company’s foothold in Ohio with the maximum of 5 stores allowed per operator. The other, the purchase of Bluma Wellness, deepens penetration into Florida’s medical market with the expectation recreational use is on the way as well.
In terms of hard numbers, Cresco Labs’ growth has accelerated from 215% YOY in the 3rd quarter of the 2021 period to 323% YOY in the 3rd quarter and is expected to remain strong in the 4th. The analyst’s consensus is for 293% YOY revenue growth and we think that is a conservative estimate. The latest round of stimulus plus the company’s own efforts will see to that.
Price action in shares of Cresco Labs has been moving higher and gaining momentum in recent months. The 2020 lows turned out to be a significant turning point in the stock as it is now up more than 700% and trading in fresh territory. Most recently, price action has pulled back a bit from the highs and offering a technical entry at the short-term moving average. The price action has confirmed the entry and momentum are consistent with a low but there is still the risk of a deeper pullback. While support has begun to become evident the stochastic is still solidly bearish and not something to ignore. A move below the EMA would be bearish and could take the stock down to the $12 level.
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