Cannabis Dispensary Stocks a Compelling Subgroup for Growth

Despite some analysts predicting that the legal cannabis market could eventually be worth $500.0 billion, we’re not quite there yet. The marijuana industry is still in its infancy and is experiencing growing pains.

One subcategory that has been performing exceptionally well—and is expected to continue doing so—is marijuana dispensary stocks.

Why? During a gold rush, you could slog it out in the snow and wade knee-deep in a freezing river panning for gold. Or you could sell the picks, shovels, and pans to others.

Some of the biggest, most popular cannabis companies, those that grow marijuana plants, have been cutting back on operations and even cancelling greenhouse construction projects. The best cannabis dispensary stocks, the “picks and shovels” of the marijuana industry, on the other hand, have been thriving.

And for good reason. Consumers need to get their pot from somewhere. And the number of states where they can legally buy medical and recreational marijuana has been growing fast.

Right now, people can legally buy medical marijuana in 33 states and recreational marijuana in 11 states (and D.C.). Other states are expected to follow suit.

The legalization of recreational marijuana in the U.S. is an eventuality. Politicians need votes, and support for the legalization of cannabis is at an all-time high.

And what politician wants to miss out on millions of dollars in tax revenue?

Case in point: in the week of July 4, 2019, more than $400.0 million worth of cannabis was sold in the 10 states where cannabis was legal at the time. (Source: “American Bought $400M in Cannabis for July Fourth,” Leafy, July 8, 2019.)

By 2022, the U.S. marijuana market is projected to reach $23.4 billion. That number will get dwarfed when recreational pot becomes legal at the federal level. (Source: “Legal Marijuana Markets Projected to Reach $23.4 Billion, Employ Nearly a Half-Million Americans by 2022; Effective End of Federal Prohibition is in Sight,” GlobeNewswire, June 28, 2018.)

The 3 Best Overlooked Marijuana Dispensary Stocks

While most investors are focused on the large seed-to-sale cannabis plays, there are a few small cannabis dispensary stocks that have a lot better potential for growth in 2020.

Medicine Man Technologies Inc (OTCMKTS:MDCL) went on an acquisition spree in 2019 after Colorado passed House Bill 19-1090, which removed burdensome hurdles on who can own a cannabis business in the state.

Since the bill was passed in May 2019, Medicine Man Technologies announced the pending acquisition of 12 cannabis companies.

In 2019, these acquisition companies had revenue of roughly $170.0 million.  (Source: “Medicine Man Technologies Sees Colorado Acquisitions Adding $170 Million Annual Revenue,” New Cannabis Ventures, September 16, 2019.)

When all of Medicine Man’s pending acquisition deals close in 2020, the company will have 33 dispensaries, 12 cultivation operations, seven extraction facilities, seven manufacturing operations, and a research and development lab.

Trulieve Cannabis Corp (OTCMKTS:TCNNF, CNSX:TRUL) is the first and leading medical marijuana company in Florida, where it operates 43 dispensaries. It also has operations in California, Connecticut, and Massachusetts. (Source: “Overview,” Trulieve Cannabis Corp, last accessed January 17, 2020.)

In Florida, the company is responsible for 50% of all medical marijuana sales, and that percentage is projected to grow.

Trulieve continues to open more dispensaries, it’s growing its patient base by about 10% month-to-month, and it boasts over 300 products—a number that keeps increasing.

Fire & Flower Holdings Corp (OTCMKTS:FFLWF, TSE:FAF) should experience significant growth in 2020 and 2021.

It currently has interests in marijuana dispensaries across Canada, giving it the second-largest presence in the country.

By the end of fiscal 2019 (ended February 1, 2020), Fire & Flower expects to have 45 stores. By the end of fiscal 2020, that number is projected to hit 85. And by the end of fiscal 2021, it’s expected to reach 135. (Source: “Fire & Flower Announces Third Quarter 2019 Financial and Operational Results,” Fire & Flower Holdings Corp., December 17, 2019.

This will make Fire & Flower the owner of the largest network of legal cannabis dispensaries in Canada.

Analyst Take

The legal marijuana dispensary sector is still growing, just like the broader marijuana sector.

There are a number of certainties suggesting that marijuana dispensary stocks will continue to grow over the coming years (some more than others): cannabis sales rising, more states legalizing recreational and medical marijuana, additional kinds of cannabis products becoming available, and more consumers needing to use dispensaries.