Canaccord Genuity analysts Bobby Burleson and Jonathan DeCourcey have raised their estimates for cannabis sales in the U.S. for 2020 and 2021. The analysts based their estimates on the increase in sales for the first half of 2020 as well as post Covid-19 crisis legalization efforts.
"For 2020, we increased our forecast from $14.7 billion to $15 billion. Our updated 2020 forecast reflects higher estimates for Arizona, California, Colorado, Illinois and Oregon based on strong first half sales trends, and lower expectations for Massachusetts and Nevada," said the analysts in a new report issued this week. Massachusetts closed its adult-use cannabis stores from mid-March to late May due to the pandemic, but recently reopened them. Sales have quickly rebounded. Nevada had also closed its dispensaries during the pandemic, but instead of rebounding the state has continued to suffer from a lack of tourists traveling to the state.
The analysts said that for 2024, they have increased their estimates from $30 billion to $31 billion and the growth rate was adjusted higher from 19% to 20%. The rosy forecast is based on the belief several states will quickly create recreational programs as a way to plug budget holes. They also decided to bring in New Jersey recreational sales for 2022 into their model.
The Canaccord report cited point of sale data from BDSA, the cannabis analytics company, to the increase in sales. Arizona has experienced 48% year-over-year (YOY) growth and Oregon has enjoyed 38% growth YOY. Other key states like California reported sales rising by 11% and Colorado saw sales jump 19%. Nevada was the only state to report that its sales only increased by 1% for the first half of 2020, but June sales did begin to show signs of life for the state as they increased 15% YOY.
July sales continued to show strong demand. California reported sales of $348 million, its highest month to date since legalization. Illinois had sales of $61 million, which was a big jump over June's sales of $48 million. In 2020, through July, Illinois has recorded more than $380 million in sales. Oregon also posted a new record of $106 in July, which is now its third month in row with sales cracking the triple digit mark.
Post Pandemic Shortfalls
Many in the cannabis industry have been surmising that states will look to cannabis to plug any budget shortfalls. These analysts seemed to believe the same. It isn't without reason. States have used sin taxes for years to boost revenue. The report cites an analysis by the center on Budget and Policy Priorities that is projecting that states budget could come up short by 10% in 2020 and rise to a whopping 25% in 2021.
The analysts wrote, "We view states with acute budget shortfalls as likely to aggressively pursue legalization once bottlenecks are relieved. Further essential status of dispensaries during COVID-19 crisis bodes well for governmental and public support in states considering expansion beyond medical-only programs." The analysts also think that states will see legalization as an attempt to address social justice issues that have also been troubling citizens.
Canaccord recently hosted its 40th annual Growth Conference and some of the cannabis companies presented. Several told the analysts that they believe Democratic gains could catalyze cannabis stocks. They think Democratic gains in the Senate would be supportive of the legislative efforts that have stalled.
The analysts have speculative buy ratings on the five companies they reviewed. AYR Strategies (CSE:AYR.A), which has a C$17.50 price target has been hit with the double whammy of being in Massachusetts and Nevada. However, AYR is profitable and recently received two new dispensary licenses. The company looks to complete an acquisition before the end of the year. Its cash position of $16 million puts them in a position to acquire a challenged business.
KushCo Holdings (KSHB) has a $1.50 price target and has had a rough year as the company dropped its less financially stable customers to focus on the larger, better capitalized ones. Sales dropped, but it also cuts its exposure to non-paying customers. The company's guidance for the fourth quarter says its going to be breakeven EBITDA for the first time.
Planet 13 Holdings (CSE:PLTH) has been beaten up for being in the Nevada market and for its (what looked like a brilliant move pre-Covid) focus on the tourist trade. Still, the analysts think the long-term growth is still there and that the company's planned expansion into California will bear fruit. The company is on track to open in the state in early 2021. Planet 13 could also expand into cities like Chicago, Boston and Detroit. The price target here is C$4.50.
SLANG Worldwide (CSE:SLNG) is now under the wing of CEO Chris Driessen, who comes to the company by way of Organa Brands. Slang is ramping up its relationship with Trulieve (TCNNF) in the Florida market and Gage in Michigan. The company also said that it is expecting to announce new partnerships in California and Massachusetts. The price target for this company is $0.40.
TILT Holdings (CSE:TILT) has a C$1.00 price target and has had a mixed experience with the pandemic. Its wholesale sales in Massachusetts have been down. But its Blackbird delivery business has been in demand and its Jupiter line of products have stepped in where others have had inventory problems. The company has positioned itself well in Pennsylvania and nearly all its business lines are cash flow positive.