2024 Oscars Of Marijuana Equity: Analyst Nominations Spotlight Key State Performers

In his latest cannabis sector equity report, senior analyst Pablo Zuanic of Zuanic & Associates offers a detailed examination of the cannabis sector's landscape in the fourth quarter of 2023.

The report, “4Q23 Trends in Key States,” offers a crucial insight into the performances and trends influencing major players in the industry.

Market Trends And State-Specific Observations

Despite a general trend of flat or declining sales in most states during 4Q23, Connecticut, Ohio, Illinois, Maryland and Rhode Island showed encouraging growth. Notable companies like MariMed MRMD, Verano VRNO, and Green Thumb Industries GTBIF benefitted from their diversified state exposure.

Price stabilization was evident in many states, although the rapid pace of licensing led to reduced revenue per store.

This was especially pronounced in states with store caps, such as Illinois, Massachusetts, and New Jersey. The resilience of retailer economics in states like Nevada and Pennsylvania stood out.

The report highlights MSO performance variations in Florida, with Trulieve TCNNF showing stable volumes, Cresco Labs CRLBF achieving over 30% growth, and AYR Strategies AYRSF experiencing significant declines.

Catalysts And Regulatory Developments

The sector eagerly awaits the DEA's response to the HHS's rescheduling recommendation. This development, along with potential political shifts, could significantly impact the market.

"DEA agreeing with the HHS recommendation expected any time before June. This could be positive for stocks, but without a framework, implementation might wait until after the election, potentially capping the upside,” Zuanic wrote. “Regarding the 1/23 Boies-led lawsuit, we anticipate the DOJ will file a motion to dismiss, prolonging the process, yet remaining significant."

Speculations about former President Trump’s support for rescheduling and President Biden’s potential cannabis legalization promise add to the sector's dynamic environment.

Zuanic raised questions about potential "unforeseen catalysts" in cannabis rescheduling:

"Could former President Trump publicly agree with the rescheduling recommendation? Might President Biden 'raise the ante' on cannabis by announcing plans to legalize recreational cannabis federally if re-elected (i.e., de-schedule it federally)? Will more MSOs follow Trulieve's example and seek tax refunds for the past three years, challenging the applicability of 280E?" Zuanic asked.

State Analysis And Company Performance

Arizona

With a 6% yoy sales drop and low wholesale prices, Arizona's market, where Trulieve and Curaleaf CURLF lead in-store ownership, favors retailer consolidation.

California

Facing a 12% yoy sales decrease, California’s market, with key players like GlassHouse GLASF, Gold Flora GRAM and StateHouse STHZF, sees stabilizing prices.

"Prices are starting to stabilize recently, with wholesale leading the way. This has squeezed retailer spreads, though companies like Gold Flora and StateHouse are less affected due to vertical integration. Headset reports average flower retail prices at $5.23/gram in 4Q23, down 2% quarterly and 14% annually," Zuanic said.

“Cannabis Benchmarks notes wholesale prices at $746/lb, the lowest nationally, down 2% quarterly but up 10% annually, partly due to a below-average harvest. Retailer flower spreads were $2.52/gram in 4Q23, 21% lower than last year and down 5% sequentially.”

Colorado

Sales declined in the low teens, but easing price pressure suggests market consolidation, with Schwazze SHWZ targeting expansion.

Nevada

Stabilizing sales and high wholesale prices benefit major operators like AYR, Curaleaf and Green Thumb.

New Mexico

Despite an 18% yoy sales increase, challenging store economics persist with Schwazze reporting above-average performance.

Connecticut, Illinois, Maryland And Rhode Island

These states experienced growth with companies like Acreage ACRHF, Curaleaf, and Trulieve operating across these regions.

Florida

The market shows diverse MSO performance, with key players including Trulieve, Verano, and AYR.

"Florida had 615 stores at the end of December 2023, up from 509 at the end of 2022, with 25 added in the fourth quarter," Zuanic stated.

“Trulieve leads with 131 stores, an increase of 8 or 7%. Verano follows with 74, up 19%; AYR has 63, a 15% increase; Curaleaf 61, up 11%; Surterra and VidaCann remained at 45 and 26 stores respectively; Green Dragon grew by 118% to 37; Cansortium has 34, up 17%; Cresco grew 57% to 33.”

Massachusetts And Michigan

Massachusetts’ market, better for growers, involves companies like Schwazze, while Michigan's challenging retailer economics affect operators like Mitten Extracts and Jeeter.

"Michigan hosts 751 recreational and 245 medical cannabis stores, with over half of the medical outlets also selling recreational, totaling nearly 970 stores. This equates to about 97 stores per million people," Zuanic noted.

“However, the actual store density is lower, as only 138 municipalities are in the recreational program, out of 1,370. With average sales of around $3.3 million per store and low-profit margins, the economic viability of these stores is challenging.”

Missouri And New Jersey

Missouri's swiftly expanding market benefits players such as Curaleaf and MariMed. In contrast, New Jersey's more moderate growth trajectory presents challenges and opportunities for companies including Curaleaf and Green Thumb.

Ohio And Pennsylvania

Ohio's growing medical market and upcoming recreational sales include companies like Curaleaf, while Pennsylvania's improving market benefits MSOs like Jushi Holdings JUSHF and Trulieve.

Outlook And Strategic Implications

Pablo Zuanic’s report underscores the complex and evolving nature of the cannabis sector, influenced by regulatory shifts and market dynamics.

As the industry navigates these changes, the ability to adapt and capitalize on specific state opportunities will be critical for companies.

With the DEA’s decision looming and potential political developments, the sector remains poised for both challenges and growth opportunities.

Photo: AI-Generated Image.