Not long ago Green Thumb Industries (GTBIF) announced it had successfully acquired one of New York’s 10 vertically integrated cannabis licenses, via its acquisition of Fiorello Pharmaceuticals.
Included in the deal is a cultivation business in Schenectady, and four other dispensary locations located in Halfmoon, Manhattan and Rochester, with the fourth to be opened in Nassau County.
In this article we’ll look at what the company gets in the deal, and one thing most of the market hasn’t fully realized yet.
The New York cannabis market
As of now the New York cannabis market allows the sale of medical cannabis, not recreational pot. That is expected to change in the not-too-distant future.
As of August 2019 New York State says it has over 105,000 registered medical cannabis patients. That’s almost twice the number of registered medical cannabis patients in January 2019.
Per the cannabis program of New York, it qualifies 15 conditions that can be medically treated by cannabis, including chronic pain, opioid replacement, and PTSD. This is sure to increase as more research is engaged in.
The new market should vastly increase the $44.7 million in revenue generated in the latest reporting period, which represented a year-over-year increase of 228 percent. At the same time, losses are likely to be up as well, with the latest quarter jumping to $22.2 million, significantly up from the $9.7 million in the prior quarter. Some of that was attributed to a decline in value of a variable note.
New York State represents a market of about 20 million people. For that reason and growing awareness and acceptance as cannabis as a legitimate treatment for some medical conditions, I believe on the medical cannabis side of the business there are going to be a lot more patients registering over the next couple of years in that market.
Why that has enormous potential for Green Thumb Industries
One of the very important things Green Thumb Industries is doing that I don’t think is being taken into account by the market yet is its overall business model.
A key thing mentioned by Chief Strategy Officer Jennifer Dooley when talking to Benzinga was the companies ongoing strategy of looking for and entering markets that have limited licenses. This is a key to the potential of these types of deals.
Essentially what New York and other markets have done, is to provide a form of legal monopoly on those companies receiving licenses. This is extremely important because it obviously limits competition in a state with huge potential for long-term growth.
When saying that, I mean even if recreational pot takes a long time to be legalized, assuming it will be, the medical cannabis market in New York is going to generate a lot of revenue with solid margins.
What remains to be seen within the 10 licenses allowed in New York, how much market share Green Thumb Industries can capture. As it stands, it only has nine other companies to compete against.
Conclusion
The fact New York only allows 10 licenses within the state is a potentially huge catalyst for Green Thumb. If the company can successfully execute in this huge market, it should scale nicely going forward
That works especially well with its presence in geographically connected states Connecticut and New Jersey.
While Green Thumb has work to do on lowering costs, it is positioned to scale at a pace that should be conducive to that end. New York and its semi-monopoly will go a long way to achieving those results for the company.
