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An Update On The Florida Medical Marijuana Market

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Includes: ACRG, CGC, CURLF, GTBIF, HRVSF, LHSIF, MMNFF, TCNNF
by: James V. Baker
James V. Baker
Long/short equity, banks
Summary

The Florida medical marijuana market continues to expand at a rapid pace.

The two publicly held companies with the largest presence in the state are Trulieve followed by Curaleaf.

Extensive Florida operations have allowed Trulieve and Curaleaf to avoid the bear market that has engulfed multi-state operators MedMen, Acreage Holdings and Harvest Health.

Acreage Holdings' lack of ANY sales in Florida sends a strong signal that it is adrift.

Expectations of a robust marijuana marketplace prevailed when Florida voters approved medical marijuana. Those expectations are being met and exceeded as patients increase and dispensaries are opened throughout the state. Given the speed of this expansion it seemed appropriate to take a closer look at the robustness of the market for medical marijuana.

Active Medical Marijuana Users

As of October 11, 2019 there were 274,578 Qualified Patients with Active Medical Marijuana ID Cards in Florida compared to 168,981 at the beginning of the year. The number of ID cardholders continues to grow by about 2,500 every week.

At the beginning of 2019 there were 1,941 Qualified Physicians allowed to prescribe medical marijuana in Florida. In the latest week there were 2,535.

Licensed Medical Marijuana Treatment Centers

Currently, there are 22 licensed medical marijuana treatment centers, MMTCs, however, the following 10 do not have a single dispensary: Acreage Florida, Inc., Bills Nursery, Inc., Deleon’s Bromeliads, Inc., Dewar Nurseries, Inc., Hart’s Plant Nursery, Inc., One Plant, Perkins Nursery, Inc., Redland Nursery, Inc., Spring Oaks Greenhouses, Inc., and Tree King-Tree Farm, Inc.

Acreage Holdings Inc.

The fact that Acreage Florida, Inc., which is 100% owned by Acreage Holdings Inc. (ACRG), does not have a single dispensary and has not sold a milligram of THC or CBD or an ounce of smokeable speaks volumes about the ineptitude of its leadership. Acreage Holdings acquired Nature’s Way Nursery of Miami, Florida on January 4, 2019 for $67 million, $63 million in cash and $4 million in High Street Capital Partners Units. It is astonishing that Acreage has zero sales in Florida nine months after its acquisition of Natures Way.

Acreage is the company chosen and touted by Bruce Linton, the former CEO of Canopy Growth (CGC), as the leading multi-state marijuana operator, MSO, in the USA. At this moment, the $300 million of CGC cash Linton gave to Kevin Murphy and other ACRG shareholders seems reason enough as to why the CGC board unceremoniously ousted Linton. Since receiving the gift from Linton, Murphy seems to have been so busy counting his share of the money that he hasn’t had time to grow, process and sell ANY marijuana in Florida.

It seems appropriate that since the Canopy/Acreage deal was announced on April 18, 2019 CGC stock has fallen from $44.56 to close at $19.43 on October 11, 2019 for a decline of 56.4%, while ACRG stock has fallen from $22.51 to $5.80 or 74.2%. Of course ACRG shareholders were given $2.63 per share by CGC for giving them the right to acquire 100% of ACRG at an uncertain future date at which time ACRG shareholders would be given 0.5818 shares of CGC for every ACRG share owned. That option premium pales compared to the losses experienced by ACRG shareholders in the last six months.

Number of Dispensaries

Florida’s 12 fully functioning MMTCs had a total of 180 dispensaries on October 11th versus 88 operating at the beginning of 2019. MMTC dispensations amounted to 77.1 million mgs of THC, 2.2 million mgs of CBD, and 12,444 ounces of smokeable marijuana during the latest week. At the beginning of 2019 weekly dispensations amounted to 43.8 million mgs of THC and 1.7 million mgs of CBD. Smokeable marijuana only began to be dispensed in July 2019 and weekly dispensations began at 9,416 ounces.

Trulieve (OTCPK:TCNNF) is the dominant MMTC in number of dispensaries with 37, followed closely by privately-held Surterra Wellness with 34 and Curaleaf (OTCPK:CURLF) with 26. Liberty Health Sciences (OTCQX:LHSIF) operates 17 dispensaries, while Fluent has 16, VidaCann 13, Grow Healthy 9, AltMed Florida 9, Harvest (OTCQX:HRVSF) 6, GTI/Rise (OTCQX:GTBIF) 5, MedMen (OTCQB:MMNFF) 5, and Columbia Care 3.

Trulieve’s early mover advantage is apparent by looking at the mgs of THC and CBD it dispenses relative to its competitors. While Trulieve operates 20.6% of all MMTCs in Florida, it dispenses 54.0% of all THC, 30.2% of all CBD, and 37.5% of smokeable. Its average dispensary dispenses 1.1 million mgs of THC, 17,834 mgs of CBD, and 131 ounces of smokeable. Trulieve’s per store dispensations dwarf its competitors. For example, the average Surterra Wellness dispensary dispenses 264,082 mgs of THC, Curaleaf dispensaries dispense an average of 330,802 mgs, Liberty Health Sciences dispensaries average 190,333 mgs, and Fluent dispensaries dispense an average of 189,282 mgs of THC. AltMed’s dispensaries are a distant second to Trulieve in the average mgs of THC it dispenses at 595,354 mgs per store.

Stock Performance

Trulieve’s dominant profitable operation in Florida has allowed it to weather the cannabis sector bear market better than most other publicly held companies. In fact, on October 11th it closed at $9.56, which was up 18.3% for 2019. Curaleaf (OTCPK:CURLF), which also has a significant presence in the state, has seen its stock price increase by 27.8%. GTI/Rise (OTCQX:GTBIF) stock is also up by 10.8% so far this year. On the other hand, MedMen (OTCQB:MMNFF) is down 57.4%, Liberty Health (OTCQX:LHSIF) is down 57.2% and Harvest Health (OTCQX:HRVSF) is down 52.2%.

Summary

Trulieve remains the best of breed in the Florida medical marijuana market for investors. Its early mover advantage, large number of dispensaries and greater sales per square foot combine to establish a profitable footing and a significant moat around its franchise. New MMTCs and existing ones will find it difficult to fund their expansion plans now that marijuana stocks have come under great downward pressure.

Whether Trulieve management can avoid wasting its Florida free cash flow to follow a dream of becoming a multi-state operator remains a concern. Profit opportunities in Florida are more than sufficient to keep the people in Quincy busy.

Disclosure: I am/we are long MMNFF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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