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Friends,
In just 17 days, Illinois, with a population of 12.7 million, the sixth highest in the country, will permit sales of cannabis for adult-use. As veterans of watching legalization roll outs, we are well aware that new programs often fail to meet expectations, but we think legalization in Illinois is likely to be perceived as one of the most successful to date that will help drive the industry forward.
It’s a Big State with a Big Opportunity
Of all the states that have legalized thus far, only California is larger. In fact, it’s the only other state among the 10 largest in population besides Michigan, #10 with 10.0 million residents, which just legalized but likely doesn’t have the same near-term potential. The size of the market, which will also include a substantial number of tourists, is the first aspect of what makes Illinois promising.
The Infrastructure is in Place
One of the key challenges for legalization has been a lack of infrastructure at the time of legalization. The first state to legalize, Colorado, suffered from shortages, but it was one of the better roll outs nonetheless, as retailers were there on day one and many had previous experience as medical dispensaries. In contrast, Canada and California, two larger markets, suffered poor launches due to a lack of infrastructure. In the case of California, the state tried to implement the program without an established regulated medical cannabis market. This is a challenge for Michigan as well. In Canada, a robust medical program was 100% mail-order, and the transition to retail stores was stymied by a lack of them. Even to this day, a full year after legalization, only Alberta among major provinces is anywhere close to having enough dispensaries to serve demand. Illinois will have more dispensaries open on day one than Ontario, which is larger in population, has more than a year after legalization. Nevada is another success story, with a quick transition from a medical-only market to one that was able to quickly scale up for the larger adult-use market. Illinois is similar to Colorado and Nevada, with its medical market operators able to quickly transition to the new market.
Public Companies Are Poised to Benefit
For investors, Illinois is exciting because many of its operators are already public or in the process of merging into public companies. While it was exciting to see Colorado legalize six years ago, there was no public company involvement. In fact, for just a short while longer, that remains the case. California has had very limited public company exposure to date given its potential size, and the Massachusetts market has a bit more but has seen little impact due to the very slow roll out in that state. Beyond the public companies being able to benefit, one aspect that may not be widely appreciated is that the incumbent companies will benefit from oligopoly surrounding the ability to grow and process cannabis, as there will be no additional cultivation licenses awarded until at least July 2021.
Nearby States May Join In
Illinois is the second Midwestern state to legalize, and there are several others, like Wisconsin and Ohio and Minnesota, both of which have medical programs, which may be able to more easily justify legalization. We have already seen this in the East, where Massachusetts has inspired nearby states to consider following suit.
Success Could Help Bypass the Ballot Box
While every other state has legalized through voter initiatives, Illinois was the first to do so via the legislature, which greatly reduced the time to implementation. Ballot initiatives are very uncertain, and we have seen some in-fighting in states like Arizona and Florida, which are two states that have a good chance to see legalization in 2020. Florida’s legislature could bypass the effort on its own, and New York, New Jersey and Pennsylvania are all working towards legislative changes. We think that a successful roll out in Illinois could pave the way for other states to follow it with legalization through the legislature.
The Social Equity Aspect Appears Robust
While some suggest it doesn’t bring intended beneficiaries into the program quickly enough, Illinois is implementing a program that attempts to reduce barriers to ownership for those who have been adversely impacted by the enforcement of prior cannabis-related laws that could become a model for other states. This is an issue that has been front and center in other states and cities and has even entered the debate at the federal level, and we think that the thoughtful approach that Illinois is taking could help address this important issue we face as an industry and a society.
We are excited not only by the prospects for one of the most successful legalization efforts to date and the economic and social benefits that it will bring as well but also by the role it could play in speeding up legalization by other states. As each new state or country legalizes, new states are able to learn what works and what doesn’t, and, consequently, progressive roll outs should be better over time. Kudos to Illinois!
Employing a consumer-packaged goods approach to cannabis, Cresco Lab’s house of brands is designed to meet the needs of all consumer segments and includes some of the most recognized and trusted national brands. The company’s national dispensary brand, is a wellness-focused retailer designed to build trust, education and convenience for both existing and new cannabis consumers.
Get up to speed by visiting the Cresco Labs Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
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Sincerely,
Alan & Joel
Editor’s note: The section on nearby states was amended and expanded subsequent to publication
