Can Past Medical Cannabis Sales Predict Rec Sales?

New Jersey is expected to start recreational cannabis sales either later this year or early next. Until then, it's not know what the combined med+rec sales will be, but Cantor Fitzgerald analyst Pablo Zuanic has a rough idea.

He decided to take a look at the numbers in other states to help forecast what can be expected from the Garden State.

"Med sales can help predict rec sales, a bit," Zuanic wrote in his recent note.

He pulled data on Massachusetts, Colorado, Illinois, Michigan, Massachusetts and Arizona, which began recreational cannabis sales in late January 2021, to get a clearer picture.

What The Numbers Show: The "right" multiplier" (rec/med) depends on several factors, Zuanic said. Besides the so-called "3As" (access, affordability and assortment), there needs to be a look at a state's development of a medical market prior to the recreational launch, coupled with recreational availability in neighboring states.

Here's a peek at some of the states mentioned and how their combined reg+med markets grew:

• Massachusetts: The multiplier two years in was 6x.
• Arizona: It's expected to be 2-3x.
• California: It was just 1.2x two years in "due to red tape, high taxes, and a large illicit market," Zuanic added.
• Oregon: Med was about $490 million in 2017 (rec had already started). In 2020, total recreational plus medical was $830 million, so the multiple here would be about 2x.
• Washington: Medical was about $930 million in 2017 (rec had already started). In 2020, total rec+med was $1.11 billion, so the multiple would be 1.2x.
• Nevada: Medical was about $270 million in 2017 (rec had already started). In 2020, total rec+med is expected to be $785 million, or 3x.
• New Jersey: The size of the rec+med market could be 5-6x larger than medical 12 months into recreational.

"We are not changing our current market projections, but this analysis could mean upside to our AZ and NJ market estimates," Zuanic added. "Still, medical markets were at different stages of development in these states before rec started, so comparisons can only go so far."

Case Study: Zuniac estimates New Jersey med sales currently hover between $270 million and $300 million, which would put med per capita at only $30, or one-fifth of Arizona's levels. 

He specifically cited the Benzinga Cannabis Capital Conference, where Ayr Wellness Inc AYRWF management said Garden State Dispensary — which Ayr agreed to acquire — has a canopy of 30,000 square feet and the state has 300,000 square feet in total.

"If those figures are right, and we assume companies sell all they produce in NJ, this would mean the market is at $300Mn," Zuanic says. "GSD was valued at $101Mn before earnouts, or 3.4x current sales, which implies the company is doing $30Mn in sales. If indeed they have 10% share, that would put the NJ med market at a $300Mn run rate at present."

Zuanic estimates fourth-quarter 2020 sales in New Jersey to be at $68 million, or about $272 million annualized.

"That said, it could be higher, if we take canopy data from peers," he adds, citing that total New Jersey canopy could be closer to 500,000 square feet.

Curaleaf Holdings Inc CURLF has disclosed 153,000 square feet; Verano Holdings VRNOF 120,000; Terrascend Corp TRSSF 80,000; Columbia Care Inc CCHWF 50,000; and Acreage Holdings ACRDF 30,000. 

(Photo courtesy of Pixabay.com)