Cannabis corporations that cultivate, process and sell the product in Illinois, where sales are high and licenses are limited by state regulators, appear to be particularly attractive to investors in Summer 2020.
“Illinois in general is having a monster first year in cannabis,” says Kristoffer Inton, a research director who covers the sector at Chicago-based Morningstar. Citing the $300 million generated from the first seven months of recreational sales in the state, Inton added that the “amazing” sales activity in the state is particularly impressive, “As there are still a lot of dispensaries yet to open.”
Chicago-based and publicly traded Green Thumb Industries, which has cultivation and retail operations throughout Illinois, beat market expectations by reporting nearly $120 million in revenue in the second quarter of 2020. The company’s stock price has quadrupled over the last six months and closed on Friday with a market capitalization of nearly $4.5 billion.
Cresco Labs, the other publicly traded Chicago-based cannabis company with large retail and agriculture operations throughout Illinois, says it will announce earnings on Thursday. The company’s $3.3 billion market capitalization is three times higher than what it was in March.
SPACs, REITs, and grass
Cannabis investors and executive operators are increasingly abuzz with the potential of Special Purpose Acquisition Companies (SPACs) private capital to Illinois and other U.S.-based capital companies.
Often described as “blank check” companies, SPACs conduct their own initial public offerings without an operating business to pool capital for the acquisition of companies perceived to be under-valued due to operational challenges or lack of access to growth capital. In 2019, nearly $14 billion was raised by SPACs from public investors. Until an acquisition is made, that capital earns interest. If a deal is not made in two years, the original capital plus interest is returned to investors.
Cannabis companies, with capital challenges in part due to the federal illegality of the plant, have become targets of SPACs with money to burn. In addition to SPAC and private equity funding, cannabis companies also raise money through the sale of assets to cannabis Real Estate Investment Companies (REITs), including Chicago-based NewLake Capital. Green Thumb Industries co-founder Pete Kadens is on the investment committee at NewLake, which raised $86 million last fall.
Pharmacann secured funding from NewLake as well as a group of private equity investors after its $682 million merger with California-based MedMen collapsed.
After the 2019 crash of the cannabis bubble and 2020 economic disruption of Covid, cannabis companies with licensure in Illinois and access to capital are once again living in groovy (or at least less gloomy) times.
“We feel more comfortable than we did 90 days from now,” said PharmaCann senior Vice President Jeremy Unruh told Grown In. “The quarterly earnings reports for U.S. cannabis companies were quite strong. This buoys a lot of what’s going on in the sector.”