Florida has emerged as perhaps the largest and most lucrative medical cannabis market in North America.

Though the state doesn’t charge tax or track the value of marijuana sold, we estimate sales are at a $1.2 billion run rate as of November, making Florida almost 2/3rds the size of the entire Canadian market so far.

To help you take advantage of Florida’s massive potential, we’ve created a helpful guide for investors.

The guide includes:

  • Recent statewide sales and competition trends
  • A list of the publicly traded Florida license holders
  • Market share by company and market share trends
  • Our preferred way to invest in Florida

 

The Past and Future of Cannabis in Florida

Medical marijuana in Florida was legalized in 2016 through Amendment 2, which passed with an overwhelming 71% majority.

Since then, patient numbers and sales volumes have been growing steadily, but with a limited number of companies licensed to grow and sell marijuana there remains significant unmet demand in the state.

Until April 2019 there were only 14 companies allowed to operate in the state.

As of October there are now 22 licensed operators but only 13 are active.

Owning a license today is especially attractive as it allows operators to build brand recognition and excess cultivation capacity to handle an explosion in demand that could come from recreational legalization in the state.

A poll conducted by the University of North Florida recently, showed that recreational use of marijuana is supported by 73% of Democratic voters, 54% of Republican voters and 64% of independents in the state of Florida.

Legislators are currently laying a foundation for a 2020 vote to legalize the recreational use of cannabis, but in the meantime there are two bills floating around that could positively impact demand.

Bill HB 149 would uncap the number of marijuana licenses and increase the maximum dispensaries each license holder could build above the current 25 location cap.

Bill SB 212 would allow marijuana to be sold at retail facilities as well as “treatment centers”.

These bills could easily be overshadowed by recreational legalization, but for now all investor’s should know is there is strong momentum in the state to make it easier to both access marijuana and offer it for sale. 

 

Sales and Patient Trends

From a sales perspective, Florida is knocking the lights out.

Volumes sold are up 265% since January and in July sales spiked 60% in one week with the legalization of flower sales on top of extracts.

Monthly Growth in Volumes Sold

Florida Monthly Volume Sold Growth

Source: Florida Department of Health

The industry is seeing shortages of flower as of November which tells us pricing is likely holding up well and there will continue to be robust sales growth once the supply situation is worked out.

Even though patient numbers and sales are growing rapidly, operators are starting to catch up, with store openings accelerating since May.

Florida’s store count is up 110% so far this year against an active patient count up 64%.

This tells us competition is growing.

Patients Have More Stores to Choose From

Florida Patients and Stores

Source: Florida Department of Health

Less patients per store means dispensaries will have to compete for customers more than they have in the past.

However consumption rates have been increasing in 2019 which means though a store may see less customers in a day, each customer is buying more than they used to on each visit.

This increase in consumption coincided with the legalization of cannabis flower in the state telling us patients were likely meeting their flower demand from the black market prior to the change.

Daily mg Consumed Per Patient

Florida Volume Consumed per Patient

Source: Florida Department of Health

Because of increasing consumption trends, sales at dispensaries are still growing nicely even though each store may be losing some customers to recently opened competitor locations.

Bottom line there is still more than enough demand to go around.

Daily mg Sold Per Store

Florida Volume Sold per Store

Source: Florida Department of Health

Competition Trends

Historically, the Florida market has been dominated by one large player (Trulieve).

Market Share (May 2019)

Source: Florida Department of Health

Trulieve held a commanding 57% market share of all sales in May 2019, but the company’s lead has decreased slightly as more competitors begin to open across the state.

As of Nov. 1, Trulieve still made up 48% of volumes with a clear lead over the second largest player at only 12% of the market.

Looking at the market share change from May to November, Liberty Health Sciences has been the big winner at Trulieve and Surterra’s expense.

Keep in mind there are parts of Florida without even one dispensary, so market share gains could be coming from simply opening a new store.

The size of the Florida market is still growing so every company is showing rapid revenue growth even if they are losing some market share. 

Market Share Change May to November

Next, let’s look at who has the most efficient dispensaries.

Trulieve also comes out way ahead in this regard, selling 30% more per store than Altmed and three times as much as the industry average.

Trulieve likely has a mix of the best locations, the right products and well-trained staff to make sure the customer experience is top notch.

Trulieve’s impressive sell through likely explains why the company generates such impressive margins and cashflow on a corporate level.

Sales Per Store per Week

Florida Sales per Store per Week May to November

The Best Way to Invest in Florida

With funding markets drying up, cash is king and should be the first metric you consider when choosing any cannabis stock.

For investors who are looking to get ahead and cash in on the cannabis legalization trend, owning a pure play Florida operator or one with exposure to the state is the best way to position yourself in our view for the eventual countrywide legalization.

If you invest in Florida you can benefit from two positive trends.

  1. Florida patients consume cannabis at an estimated rate of about 80 milligrams a day, pointing to more upside in demand considering Canadian patients consumed over 100 milligrams a day in the early days of medical legalization.
  2. Florida has one of the best regulatory environments to run a cannabis business. New laws opening up the market have happened at a comparatively rapid pace and the state is known for being very pro business.

Out of the 4 top medical marijuana companies in Florida, Trulieve (CNSX: TRUL), Curaleaf (CNSX: CURA), and Liberty Health Sciences (CNSX: LHS) are publicly traded companies while Surterra Wellness is privately held and backed by the heir to the Wrigley Chewing Gum fortune.

When choosing which stock to own you have two options:

  1. Own the Florida-focused stocks (Trulieve, Liberty Health Sciences). These companies have smaller footprints than other MSOs so offer less absolute upside (with their current footprints, which could change), but you gain more exposure to a state with some of the best demand trends and least competition in America.
  2. Buy one of the large MSOs with a footprint in many states, Florida being one of them. You will have diversified exposure to federal legalization and can still benefit from explosive growth in Florida. Large MSOs require more cash to build out money losing states right now so you are taking more risk with this approach than simply owning a profitable company like Trulieve.

With funding markets drying up, cash is king and should be the first metric you consider when choosing any cannabis stock.

Option 1 is lower risk, but offers less long-term upside, while option 2 is more risky in the here and now, but would allow you to set it and forget it for years with potentially big results.

With that said, here are our top 5 stock picks to take advantage of Florida’s explosive growth.

 

Our Top 5 Choices

#1 Trulieve (CNSX: TRUL)

The most profitable cannabis stock in North America and a market share leader in Florida, Trulieve is hands down the #1 option in our mind.

Trulieve doesn’t have to worry about running out of cash which makes it attractive even though its 3 state footprint is smaller than peers.

You have limited your potential downside while also maximizing exposure to the Florida market.

#2 Cresco Labs (CNSX: CL)

Cresco has a lower market share than some others in Florida at only 3%, but with a footprint in more than 10 states and good access to capital, Cresco offers significant upside to a growing U.S. cannabis market.

We chose Cresco over Curaleaf for #2 because Cresco is sitting on enough cash to carry it through 2020 compared to Curaleaf which needs to raise more money in the next three months.

Cresco has the capital to expand rapidly in Florida so it likely won’t stay at such a low market share for long.

#3 iAnthus (CNSX: IAN)

iAnthus beats out Liberty Health Sciences as our number #3 pick due to a much larger national footprint, enough cash to survive the current funding crunch and a similar market share to Cresco Labs.

iAnthus gives you access to the Northeast where there are untapped markets like New Jersey and New York just starting to ramp up.

#4 Liberty Health Sciences (CNSX: LHS)

Liberty has a long operating history in Florida and has the second-largest market share in the state. Liberty is improving sales per store faster than any other peer and now has the third highest sales per store.

After a recent asset sale Liberty is cashed up and looks to be only a quarter or two away from cashflow profitability making future capital raises unnecessary.

#5 Curaleaf (CNSX: CURA)

Curaleaf has the largest state footprint in U.S. cannabis making it a powerful play on federal legalization.

A 10% market share in Florida is also quite strong and should help results while we wait for the legalization process to march along.

The reason Curaleaf wasn’t higher on our list is because of a low cash balance. Based on the company’s current cash burn rate, we estimate it will need to borrow more money or issue stock in the next 3 months or so.

Investors could be diluted from this transaction so we would wait to own this stock until a capital raise is in the past.

 

Summing It All Up – Patience is Key

Though we think most of these names will generate very attractive long-term returns, for now the risk in the cannabis sector is to the downside.

In a high growth, money losing industry, when access to cash dries up, some players never figure out how to adapt and simply run out of money.

The Canadian cannabis sector, which is driving funding for the whole sector, still has a price war to work through.

Investors can start nibbling at these stocks now, but we recommend adding the five names above to a watch list and waiting for confirmation that the cannabis industry is fundamentally healed before diving in feet first.

A dash of patience and the right exposure will be rewarded.