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The United States legal marijuana market is in the middle of major growth cycle with 29 states and the District of Columbia having legalized medical marijuana.
Nevada recently became the fifth state to have an active recreational marijuana market and the state has seen a major spike in demand for legal marijuana.
Demand for Legal Marijuana Continues to Grow
Demand for legal marijuana continues to increase as new markets open and existing markets expand. This trend is just getting started and has created countless opportunities for ancillary businesses.
One of the biggest beneficiaries of the legal marijuana movement will be the companies that provide lab testing services for marijuana cultivators and dispensaries. As legalization initiatives continue to be implemented across the country, there will be an increased demand for reliable cannabis testing facilities.
Before states created a legal marijuana market, consumers would buy product from the black market. The products purchased off the black market are not regulated and may contain harmful pesticides, fungicides, mold, heavy metals, and additives.
To protect consumers, most state governments have passed legislation requiring marijuana producers to have their products tested for potency as well as for potential harmful ingredients at independent testing facilities before allowing the products to go on the market.
Focused on a Coast-to-Coast U.S. Expansion
Last week, we highlighted a public company focused on this opportunity. Signal Bay (SGBY) operates testing facilities and offers accredited testing methodologies that verify the safety and potency of cannabis.
Its cannabis laboratory services division, EVIO Labs, operates laboratory testing facilities and offers accredited testing methodologies that verify the safety and potency of cannabis. The company has operations in Oregon and California (5 operational laboratories) and applies a more stringent methodology when it comes to the services provided.
The lab testing industry is expected to see incremental growth over the next few years and Signal Bay plans to capitalize on this growth by creating a coast-to-coast footprint in the United States.
Continues to Execute on its Planned Expansion
Yesterday, Signal Bay rallied more than 25% after the company announced that it has executed a long-term lease and will start providing analytical testing services to the southern California cannabis market.
The company plans to increase its pressure by entering new markets throughout the United States in places where medical marijuana is legal. Yesterday’s development took place less than a month after Signal Bay signed a letter of intent to acquire Massachusetts-based cannabis testing lab Viridis Analytics MA.
Signal Bay CEO William Waldrop has high aspirations for his company and plans to be the go-to laboratory in California, potentially the largest legal cannabis market in the world. Waldrop believes that Costa Mesa was the perfect location for Signal Bay to plant its flag and establish a central hub lab that caters to the entire southern California market (San Diego, Los Angeles, San Bernardino, Inland Empire, and more).
It does not take too long for a laboratory testing company to get situated and Waldrop expects the Costa Mesa lab to be operational in five months, which coincides perfectly with the opening of California’s legal recreational marijuana.
Developments to Watch
In 2016, California generated approx. $2.8 billion in revenue from medical marijuana. Many experts expect the legal recreational and medical marijuana market to be a $10+ billion industry in California by 2020.
Through inorganic (acquisitions) and organic growth opportunities, CEO Waldrop plans for Signal Bay to have a central hub lab in every major market and to be the household name in cannabis testing.
We are favorable on these developments and they are in-line with their growth strategy. The California and Massachusetts marijuana markets are very attractive due to their growth potential and strategic location.
We reached out to Signal Bay CEO William Waldrop and asked him two questions that we had regarding the recent developments.
When do you expect to start generating revenue from the California lab and how do you expect revenue from this asset to grow once the recreational marijuana market opens?
We anticipate the Southern California lab to be operational in First quarter of 2018. The local licensing process in Costa Mesa will take 4-5 months. During this timeframe, we will be completing tenant improvements, hiring, installation and optimization of equipment. As we experienced in Oregon, we foresee a sizeable jump in revenues after July 1, 2018 when mandated testing goes into effect.
What are the next big catalysts for the cannabis lab testing market?
The big catalyst for the California Market will be the timing of California issuances of licenses. Upon issuance, these cultivators and product manufacturers will be required to perform mandated testing. Other key catalysts will be the formal timing of recreational testing in states like Massachussetts.
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