An important development that took place during the COVID-19 outbreak is that cannabis has been declared an essential industry in the US and Canada. As a majority of stores are closed due to the outbreak, the virus should create a headwind for the industry as dispensaries have been reporting higher-than-normal sales.
Although cannabis stores have remained open and have reported strong numbers during the crisis, the sector has been under pressure and this is a trend that our readers need to be aware of. Going forward, we believe that the cannabis sector is positioned to record strong growth and are especially favorable on the opportunity in the US.
When it comes to the US cannabis market, we are very selective as to the states that we are focus on. We believe that companies need to be focused on specific markets in the US and are highly favorable on the opportunity in California, Colorado, Illinois, Michigan, and Nevada. These markets represent substantial growth opportunities and we are going to publish a series of articles that highlight companies that are levered to these burgeoning cannabis markets.
Today, we are going to focus on the California cannabis market and will highlight 3 companies that are capitalizing on the opportunity. California is the world’s largest cannabis market and we are favorable on the growth prospects that are associated with it. We believe that these companies are well positioned to continue to capitalize on the California market and are opportunities to be watching.
Halo Labs: A California Cannabis Growth Story
Halo Labs Inc. (NEO: HALO) (AGEEF) is a US cannabis company that we have been focused on and are favorable on given the leverage that it has to burgeoning state markets. The company is highly levered to the California market and we are impressed with how it has expanded its footprint over the last two years.
California represents the largest opportunity for Halo Labs and we have been highly focused on this aspect of the story. The company initially set up operations in Oregon and expanded into California after it established a strong foothold in the Oregon market. Over the next year, we expect to see Halo Labs further increase market share in California and this is an opportunity that we are excited about.
Earlier this week, Halo Labs reported to have sold its products into 118 new dispensaries (62 new dispensaries in California and 56 new dispensaries in Oregon) in the first calendar quarter of 2020. This represents a 282% increase in the company’s dispensary customer base in California and a 19% increase in Oregon when compared to the period that ended on December 31, 2019. We are impressed with the increase in the number of clients in California and expect these numbers to result in Halo Labs reporting stronger revenue numbers.
Halo has penetrated approximately 14% of dispensaries in California which represents a significant increase when compared to the same period last year. The company attributes the increase to several strategies including an increased segmentation of product offering to compete in key categories such as vape cartridges.
California represents a major opportunity for Halo Labs and we expect it to report stronger sales as a result of the increase number of dispensary clients. The recent trend has been volatile and the market has not been too favorable on the opportunity. We believe that Halo Labs has a favorable risk-reward profile and has been flying under radar.
1933 Industries: Highly Focused on the California Market
1933 Industries Inc. (TGIF.CN) (TGIFF) was an early mover on the Nevada cannabis market that recently became focused on the opportunity in California. Last year, the company announced a management agreement with California-based Green Spectrum Trading to support its portfolio of consumer packaged goods and licensing partners. The companies move into the California market represents a major growth opportunity for the business and we believe that the market does not fully appreciate this aspect of the story.
The relationship with Green Spectrum Trading is an attractive aspect of the 1933 Industries story and we have been bullish on the California market for several years. Green Spectrum Trading represents a strategic partner and we are favorable on the amount of value that can be generated between the businesses.
1933 Industries is well capitalized and is focused on a number of important initiatives. We believe that the company is in the early innings of a major growth cycle and expect the California market to represent a significant catalyst for the business. At current levels, the market seems to have discounted several of these major growth initiatives and we find this to be significant.
At current levels, 1933 Industries has a compelling valuation and a favorable risk-reward scenario. We believe that the management team is bringing the business down a path to profitability and are favorable on how the company will become less reliant on third-party biomass. We are of the opinion that 1933 Industries is well positioned to record strong growth in the back half of 2020 and expect the California market to play an important role in its success.
Next Green Wave Holdings: Focused on Ramping Up California Revenues
Next Green Wave Holdings (NGW.CN) (NGWCF) is a California cannabis company that has been on our radar and is one that we are closely watching. 2020 has already proven to be a banner year for the California cannabis company and we believe that the business has been overly impacted by the COVID-19 outbreak.
Last month, Next Green Wave reported a major milestone and reported to have surpassed $1 million of net sales from a combination of dispensary, bulk flower, and cannabidiol (CBD) sales (online and retail). The growth can be attributed to an increase in the number of Southern California dispensaries that are selling the company’s products and we are bullish on the trend.
In the near future, Next Green Wave expects to expand into several dispensaries in LA and in Palm Springs and to continue to implement initiatives that are focused on increasing its revenue and customer base. The management team is working tirelessly to execute on a multi-faceted growth strategy, and we are favorable on the way the business has advanced so far this year.
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