This Number Shows the Best Could Be Yet to Come for U.S. Pot Industry

Why the Best Could Be Yet to Come for America’s Pot Stocks

If you’ve been following the marijuana industry, you’ll likely have noticed that quite a few big players come from north of the border.

And that shouldn’t come as a surprise. Since the Canadian government legalized recreational marijuana on October 17, 2018, the country’s cannabis industry has flourished. Many Canadian pot companies have been enjoying booming business.

Here in the U.S., things are a lot different, as cannabis is still classified as a Schedule I drug at the federal level. But over the years, the regulatory environment has started to change.

In particular, there are now 11 states (and D.C.) where recreational marijuana is legal, and 33 states (and D.C.) where medical marijuana is legal.

Illinois is the latest state to join the club. Effective January 1, 2020, adult residents of Illinois have been able to purchase recreational pot legally.

And here’s a number I want to show you: $39.2 million. That’s the recreational cannabis sales in Illinois in January 2020. (Source: “Pritzker Administration Announces First Month Sales Totals for Adult Use Cannabis,” The Illinois Department of Financial and Professional Regulation, February 3, 2020.)

According to the Illinois Department of Financial and Professional Regulation, pot dispensaries across the state sold nearly one million items over the 31-day period.

“The successful launch of the Illinois’ legal cannabis industry represents new opportunities for entrepreneurs and the very communities that have historically been harmed by the failed war on drugs,” said Toi Hutchinson, senior advisor for cannabis control to Governor J.B. Pritzker. (Source: Ibid.)

“The administration is dedicated to providing multiple points of entry into this new industry, from dispensary owners to transporters, to ensure legalization is equitable and accessible for all Illinoisans.”

Based on the size of the population of Illinois, the state’s first month of recreational pot sales was about $3.07 per capita.

That number is quite impressive, considering that not everyone in the state is a cannabis user.

And this could just be a start.

In fact, the state achieved that $39.2 million of recreational pot sales amid a product shortage. There were long lines outside dispensaries, and store shelves were sometimes empty. A state senator even said, “We need to make sure that everyone’s getting access to product.” (Source: “State Warns Some Pot Shops Violated Law Against Stockpiling Weed From Single Source as Shortages Continue,” Chicago Sun-Times, January 13, 2020.)

Once supply picks up, I wouldn’t be surprised to see a massive increase in recreational pot sales in Illinois.

So, how big could the market eventually be?

Well, according to a study by Freedman & Koski, the recreational cannabis market in Illinois could reach $1.7 billion to $2.6 billion of annual revenue. (Source: “A Snapshot of Demand for Adult-Use Cannabis in Illinois,” Freedman & Koski, last accessed February 11, 2020.)

The current numbers, when annualized, are not in the billion-dollar range yet. But Freedman & Koski’s report does point out that “In every market that has come online, there has been a steady windup before supply met demand and consumers made the full transition from the illicit market to the legal market.”

In other words, sales will likely keep trending upward.

The best part is, Illinois’s first month of pot sales, per capita, while impressive, weren’t even the highest among the states that have legalized recreational marijuana.

That title goes to Nevada. When Nevada legalized recreational pot in 2017, its first month of sales were a whopping $8.88 per capita. (Source: “Illinois’s legalized pot sales debut beats all states except one,” BNN Bloomberg, February 6, 2020.)

Analyst Take

At the end of the day, keep in mind that only a small fraction of U.S. states have legalized recreational marijuana, meaning a lot of billion-dollar markets are yet to be brought into the daylight.

The first U.S. state to legalize recreational pot was Colorado in 2012. So the legal markets are still quite new, and many of them are yet to reach their full potential.

This means there are still huge opportunities awaiting U.S. cannabis producers, processors, retailers, etc. As marijuana companies capitalize on these booming markets, investors of pot stocks could see a big payday ahead.