Smart cannabis industry money is seeking to establish footholds in the U.S. as evidenced by Canopy Growth Corp's $3 billion commitment to acquire US-based Acreage Holdings. The biggest hurdle remains federal legalization, but medical marijuana is still expected to be worth $8 billion by 2024, and legislation winding its way through D.C. could further ease restrictions.
It makes sense to pay attention to the emerging U.S. marketplace, which is still fractured with many smaller players throughout the country.
Item 9 Labs Corp (INLB) is a mostly undiscovered US company that could have huge potential as they expand their capacity footprint by four-fold this year and enter 6-10 new markets. They're already generating revenue, up 350% during the fourth quarter of 2018 vs the prior year, and as they enter the mainstream, this could be a top cannabis up-and-comer.
NEW YORK, NY / ACCESSWIRE / April 29, 2019 / Canada's Canopy Growth Corporation (CGC), the largest publicly traded cannabis company by market capitalization, just made a big bet on the future of the U.S. cannabis market. In April, Canopy Growth announced plans to acquire U.S.-based operator Acreage Holdings (ACRGF) for $3.4 billion contingent on the U.S. someday legalizing cannabis at the federal level. For now, they've paid $300 million for rights to the company in the future. But the signal is here - there's no stopping this new market, projected at $31 billion by 2021 globally, and the U.S. will play a big role.
It makes sense to follow the industry money, and there are only a few U.S.-based cannabis producers that stand out. Acreage Holdings is one, and of course the larger Tilray (TLRY). Among the smaller players, Item 9 Labs (INLB) is another up-and-comer focused on high-end medical products, and they're already producing in the Southwest with plans to enter 6-10 markets by the end of 2019. In fact, the company will quadruple their current operating space by the end of the year, meaning that their recent 350% year-over-year revenue growth during Q4 2018 could be just getting started.
U.S.Market Growing, And Federal Legalization May Not Be Far Off
Canopy's executives feel that U.S. legalization is coming, which is why they're making this bet now. Already many states have approved cannabis medicinally, and this market alone is poised to surpass $8.0 billion by 2024 according research published by Global Market Insights, Inc.
Right now, the prospects for U.S. legalization look pretty good. The STATES(Strengthening the Tenth Amendment Through Entrusting States) Act has been introduced into the U.S. House of Representatives and the Senate. STATES would federally recognize legalization of cannabis in states that have done so, essentially passing the buck to the state level and leaving the feds out except for certain restrictions. With Democrats controlling the House, it would not be surprised to see passage of the legislation in that chamber, and the GOP-controlled Senate may follow suit.
Regardless, the U.S. cannabis market is growing by leaps and bounds and could grow to $25 billion by 2025 accordingto New Frontier Data.
While Canada has established medical and recreational infrastructure in place, the U.S. cannabis industry is fractured among many smaller players, including Trulieve Cannabis Corp. (TRUL.CN)(TCNNF) and Green Thumb Industries Inc. (GTII.CN) (GTBIF) among others. Item 9 Labs is an Arizona-based company that recently went public and has been making a strong showing in the region. Item 9 focuses on high-end medicinal products with higher price tags and the accompanying higher margins on their products as a result.
Item 9 Is ExecutingWith >3X Revenue Growth And a Big Production Expansion
Item 9 reported revenue of in the fourth quarter of 2018 of $1,017,097, about 4 times their revenue during the same period a year before. But what makes this especially unique now is the fact that the company is doubling their production capacity with a 10,000 square foot expansion to their current facility to come online soon. They could be doubling their cultivation and production potential imminently, and a second 20,000 square foot facility in Nevada is expected to be productive by the end of the year. Combined, these two projects will have quadrupled their production potential in 2019.
CEO and cannabis expert Sara Gullickson recently said in ashareholder update letter that they expect to be active in 6 to 10 cannabis markets by the end of the year. That's possible as Gullickson is the founder and owner of DispensaryPermits.com, a consultancy that's helped operators secure licenses through the 50 states - she and her team, now under the Item 9 Labs umbrella, should have the expertise to take this business to the next level.
The well-known MariMed Inc. (MRMD) is selling just over $3 million of product quarterly and has a public market capitalization of $700 million, showing just how excited investors are about this sector and the upside potential. Meanwhile, Item 9 isn't far behind, and if they can continue growing their $1 million in quarterly sales at the end of last year, it's within reason to think Item 9 could be doing $4 to 6 million in annual revenue quickly. Capacity is key to capturing the U.S. demand, which is why Item 9's Nevada and Arizona expansions are so important right now. Based on their recent growth metrics and with additional capacity to be completed soon, Item 9 could be a top cannabis name in 2019.
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