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California and Nevada are southwestern next-door neighbors, of course, and both are big legal "adult use" cannabis markets.
But for now, that's where the similarities end.
We've talked before about the botched job of patchwork cannabis regulations holding back California's multibillion-dollar potential; we've talked about one company that could send revenue there surging 50%, too.
Happily, the Golden State is straightening up its act and should reap massive "catch up" benefits in relatively short order.
The Silver State, on the other hand, did regulation and taxation right (read that as "comprehensively" and "lower than California") the first time around, and as such, marijuana sales there are expected to soar 690%, from $103 million in 2017 to $814 million by 2025.
For my money, this makes Nevada the most important cannabis market in the world. This is no hunch, either; two transactions over the past few weeks have basically borne out my statement and validated the extreme value in the Nevada market.
This is something investors will want to get in on, and for now, it's easy to do…
The Birth of Weed Tourism
When cannabis experts talk Nevada, they're usually talking Las Vegas. "Sin City" is huge, for sure, but it hosts around 40 million domestic and international tourists a year.
Reno, too, is a critically important market. "The Biggest Little City in the World" brought in around 5 million visitors in 2018.
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And these tourists are increasingly keen to try cannabis products during their vacations – something tourists used to have to fly all the way to Amsterdam or Vancouver to do.
In other words, cannabis tourism in Nevada is going to be a massive market. Publicly traded marijuana companies that don't have a strong presence in Las Vegas and Reno are realizing two things:
- They have to be in those areas.
- The ship is sailing right now, at this very minute.
Two firms you can buy today just hopped aboard.
These Companies Could Rule Huge Southwestern Markets
Cresco Labs Inc. (OTCMKTS: CRLBF) purchased a company called Tryke, which operates the successful "Reef" dispensaries in the Las Vegas market.
This acquisition will turn Cresco into an important player in the Vegas market, grabbing the company a tasty 8% market share. In addition to the Reef dispensary – which is right behind the wildly successful Planet 13 Holdings Inc. (OTCMKTS: PLNHF) store – Tryke operates a Reef location in North Las Vegas, which sees the highest traffic in the state.
It also has locations in the Sparks and Sun Valley markets, both just outside of Reno.
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Just as exciting, Cresco gets locations in the Arizona market.
I'll be writing a lot about Arizona in the coming months, but in general, it's a lucrative, successful medical cannabis market that's poised to move forward with recreational, "adult use" status very soon.
In fact, it's similar to the booming Florida market, and public companies are taking notice. There will be a battle for Arizona, just as there is for Florida, and investors stand to profit if they understand the market.
Cresco also got a license in Utah, but Nevada was the big news in the Cresco acquisition.
And Cresco paid a full and fair price for Tryke's assets – over $282 million. You see, private sellers don't care that panicky retail investors have put the cannabis stock under pressure; if you want to buy their business, you have to pay full price.
Tellingly, Tryke's sellers are taking huge chunks of the purchase price in the form of Cresco stock; they believe it's just as undervalued as I do.
Not to be outdone, iAnthus Capital Holdings Inc. (OTCMKTS: ITHUF) followed Cresco with an acquisition in Northern Nevada.
iAnthus recently won four licenses for retail operations in Nevada to complement its existing cultivation operation, which currently sells to other dispensaries.
Now, those licenses are being held up by litigation in Nevada – a market that's much too lucrative to wait around for. So iAnthus got proactive and bought its way into the market. It acquired a company called Sierra Well, which operates two dispensaries in Reno and Carson City.
Carson City is just to the south of Reno – drivers from the Bay Area in California can pass through on their way to Reno, and it's a tourist destination in its own right. The company also gets more cultivation space for its growing suite of brands that it sells to other dispensaries in the state.
iAnthus also paid up – a cool $27 million for the acquisition. And once again, the sellers didn't want much cash; they're taking over 80% of the purchase price in iAnthus shares.
These transactions are valuable in dollars and cents, of course, but they're valuable for the lesson – and reassurance – they can give to cannabis investors smarting after a tough summer.
The lesson: Industry fundamentals are still intact, and companies are scrambling to position themselves in the most important market in the world because the branding thesis is so compelling.
And people who own their own cannabis companies are unwilling to sell at the levels the market is indicating now.
They're waiting for the higher valuations to come. And come they will. The profits marijuana investors will bring down will make "rough" markets like this well worth it.
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About the Author
Greg Miller started working on Wall Street in September, 1987, just a month before the “Black Monday” stock market crash.
During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.
After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies. He’s always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.