The U.S. hashish alternative is critical: Beginner who know what they’re doing and work sensible might be profitable – Hashish Enterprise Govt

By Terry Booth

Compared to Canada, the American cannabis industry is a completely different ball game – and only in the first inning. The highly rated research team at Cowen & Company, led by Vivien Azer, estimates that the legal cannabis market in the United States is expected to grow from an estimated $ 20 billion in 2020 to $ 40 billion in 2025. For an idea of ​​how much potential there is, consider that the California recreational market alone is larger than the total Canadian national market ($ 3.1 billion to $ 2.5 billion). There are currently 15 states as well as Washington, DC that have legalized adult cannabis. A total of 36 states have now legalized medical cannabis. This total includes states where electoral initiatives were approved in the 2020 elections. Arizona, Montana, and New Jersey all voted to legalize adult use. In the South Dakota polling initiative, voters approved both medical and adult use, while voters in Mississippi supported the state’s medical polling initiative.

With the Democrats taking over the presidency, House and Senate, there are strong signs that legalization is around the corner. A number of industry support and protection bills that were approved by Parliament but were not expected to reach the Senate are now likely to be passed. The key calculations proposed so far are:

SAFE Banking Act

This law was proposed to allow financial institutions to provide services to the cannabis industry without facing federal prosecution. The SAFE bill has long been considered the most likely bill to be passed even by a GOP-led Congress, and it is likely to gain momentum in the upcoming session as the Democrats now hold a tie. The SAFE Act, if passed, would not only make normal banking (e.g. the ability to trade credit cards) accessible for legal cannabis operations, but it would also allow many institutional asset managers to be involved in those previously held by Their compliance departments have been constrained to invest the industry and increase the pool of capital available to cannabis companies.

MORE act

The MORE bill, passed by the House of Representatives in December 2020, plans to remove cannabis from the Controlled Substances Act. This act was sponsored by Kamala Harris and is probably the most widely used act by the Democrats. Once passed, the MORE Act would enable much of what is proposed in the SAFE Act, while also providing a broad legislative platform to address other issues related to cannabis legislation and legacy issues such as racial inequality and the deletion of criminal records related to minor issues Address cannabis possession fees.

STATES Act

With a democratically run Senate, the STATES bill, seen as a means of shifting cannabis legislation to the state level, is unlikely to be the preferred means of protecting the industry from federal interference. The STATES Act, while providing protection, does not address important legacy issues related to racial and social inequality.

Given the federal momentum toward legalization and the expectation of more legalization of cannabis on the ballot in the next state-level election in 2022, adult / recreational use is expected to be allowed in more states or across the country which will lead to very significant growth beyond current projections.

While such a massive consumer opportunity typically attracts large players who are able to mobilize significant marketing budgets to get a piece of the pie, the dichotomy between federal ban and state legalization has led the blue-chip companies to Those who are interested so far mainly just have dipped their toes in the water to this day. Aside from a few companies like Constellation Brands, Altria, and Molson Coors, most traditional consumer goods companies are waiting on the sidelines due to perceived legal and global reputational risks.

This dynamic has created an ideal environment for entrepreneurs to continue to occupy a significant position in this rapidly growing market. In addition, there has been a kind of race with companies vying for position to turn into attractive acquisition targets if legalization or decriminalization occurs at the federal level.

Looking at the US market, we have seen a number of multi-billion dollar (by market cap) operators emerge with multiple states (MSOs) that have grown explosively. To date, 26 companies have quarterly revenues of more than $ 13 million and the five largest companies have quarterly revenues of between $ 136.3 million and $ 182.4 million. Three of these five companies had solid positive EBITDA numbers. It is expected that it won’t be long before these market leaders reach more than $ 1 billion in annual sales. Valuations have skyrocketed, and US-based companies are increasingly using their highly valued stocks as a currency to expand through M&A.

On the surface, it seems like we’re watching a small group of winners emerge in the U.S. cannabis space. While these companies are likely to continue to do well, the US markets still have so much growth ahead of them. The momentum that has allowed these companies to establish themselves as leaders still applies to smaller businesses and newbies. In other words, the race is still on and new winners will emerge.

We see four key opportunities for midsize MSOs to be successful:

  • There are no national brands. As certain big players build their brands across the country, the Unilevers, Proctor & Gambles, the Cokes, and the Pepsis of the cannabis room have yet to emerge. Any company that is able to create a brand that focuses on quality and high volume consumer segments will do very well.
  • The unavailability of products across state borders has resulted in MSOs not having optimal production structures. Supply chain management in several countries where MSOs have footprints does not exist. This severely limits the economies of scale that MSOs can currently achieve. The marketing of dried flowers in some states and a growing demand for biomass to make extracts for making derivatives are likely to be successful as we get closer to federal legalization. I believe this will help in the emergence of new dreadnought-sized facilities that serve multiple states while realizing the economies of scale required to be competitive. These facilities need to be taken down and I can see how wholesale will be a major driver in making these large facilities profitable.
  • The industry is still evolving, and there is a tremendous amount of value-added research to be done in the medical field in particular, opening up new business opportunities.
  • Companies that develop new technologies to achieve operational and financial efficiency, novel products, or other innovations that create reasonable intellectual property and competitive advantage are likely to do well as sole proprietorships or as acquisition targets.

Another important dynamic is that growth will continue to be driven by large consumers. Brands that do well with these groups are not necessarily the ones started by the big MSOs whose business volume is mostly based on presence rather than high-profile brands. California is a good example. There are many smaller brands in this state that do exceptionally well because they resonate with the culture and the community. We’ll see these brands grow as they expand into new jurisdictions.

Ultimately, differentiation is key, and that’s why I believe the US market has not yet seen the real winners come out. There is a great opportunity and companies that act smart and agile can gain significant market share. Some of the winners will no doubt be among the current Tier 1 MSOs. However, there will also be others whose funded business models, brands and innovations create competitive advantages that enable them to take a leap forward and become industry leaders.

The possibilities for American cannabis are huge, and there is more than enough room for new businesses as long as they work smart. Today is the smallest the cannabis industry will ever be, and I look forward to both participating in that growth and watching this global and noble industry unfold its potential.

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