A Major Marijuana Growth Play Only Contrarian Investors Could Love

A Major Marijuana Growth Play Only Contrarian Investors Could Love
A Major Marijuana Growth Play Only Contrarian Investors Could Love
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Wall Street just can’t see the long-term forest through the short-term trees.
 
What you’re about to read is the perfect example of this type of thinking.
 
Today we’re looking at a rare combination of events which is creating a potential massive opportunity for marijuana investors.
 
It sure doesn’t look like it at this second, but once you put all the pieces of this emerging story together, you’ll see there could be a massive opportunity here.
 
An opportunity that not only the market is not seeing, but is walking away from.
 
Granted, there are a few moving parts to this set up.
 
We’ve got the combination of an historic turning point in the world’s largest marijuana market, a breakdown of the driving force behind largest legal marijuana merger in history, and an upstart marijuana company looking to capitalize on it all whose shares have taken a big dip.
 
It could be a perfect combination for a big return in both the short run and long run.
 
The window of opportunity is open now so let’s get to it.
 
Part 1: Marijuana Mega-Merger
 
It all starts with the largest merger in U.S. marijuana history.
 
Last week Cresco Labs (CAN:CL / USA:CRLBF) announced it would be acquiring Origin House (CAN:OH / US:ORHOF).
 
It’s a true mega-merger in the marijuana industry.
 
Cresco Labs is one of the biggest U.S. marijuana companies. It’s a multi-state operator with full end-to-end production to retail business. It has operations in 11 states and 51 total retail licenses.
 
At the time the merger was announced, Cresco’s market value was C$4.2 billion (about US$3.1 billion).
 
Origin House is a sizeable U.S. marijuana company. It will cost Cresco C$1.1 billion (about US$800 million) in shares.
 
But Origin House doesn’t have the national breadth of Cresco.
 
What Origin does have is a huge presence in the California market.
 
Origin House is a major marijuana company in California with a state-wide distribution network of more than 500 retail stores.
 
So the driving force behind this merger is Cresco wanting a large increase its California presence and its paying C$1.1 billion in stock to do it.
 
That’s a high price to pay, but it may be worth it because California’s legal marijuana market is at a critical turning point.
 
Part 2: It’s Now Or Never In California Marijuana
 
California is the largest legal marijuana market in the world.
 
Last year alone the state accounted for more than one third of all legal marijuana sales in the country.
 
And if a marijuana company wants big growth, it must be in California or get into California soon because California’s legal marijuana industry is growing by the billions each year.
 
The most populous state in the United States has had legal marijuana for medicinal use for decades.
 
However, recreational use marijuana only went fully legal little over a year ago in January of 2018.
 
Since then it has started a major growth trend with a lot more growth to come in the next couple of years.
 
The chart below from Statista shows the major upturn in California marijuana market since it legalized recreational use marijuana:



It’s no surprise the explosion of growth whits right after legalization of recreational use marijuana.
 
When recreational use is legalized, there are no prescriptions required to buy marijuana and consumers can walk into a dispensary and buy it.
 
But here’s the thing. California is big and getting bigger, but it’s also still a relatively young market.
 
As a result, the entire market is still open for retailers to expand and brands to get established.
 
This chart from MJ Biz Daily shows how much growing and maturing the California has to do yet:
 


This is the clearest indicator that the California marijuana market has a lot of developing and expansion yet to do.
 
There are two critical things for investors to understand about California’s marijuana industry right now.
 
First, if you are going to be a major marijuana company, you have to be in California. It’s just too big of a market and it’s only getting bigger.
 
Second, the opportunity for a company to move in and establish a brand and customer base is open right now. California is still relatively young market.
 
That’s why there was a bit of a surprise market reaction to a company that just moved into California.
 
Part 3: A Big Move Into California…And Stock Drops?
 
IONIC Brands (CAN:IONC / US:ZRRRF), a current Seed Investor recommendation, just announced a deal with Origin House to take its products into California.
 

This is huge news for a company that’s still in the early, rapid-growth phase like IONIC Brands.
 
The market reaction, however, was exactly the opposite of what you’d expect. IONIC Brands shares fell 13%  following this massively good news.
 
Here’s why that’s a potentially very good thing.
 
IONIC is basically taking its established brand vaporizor pens, which are the leading brand in Washington state, to California.
 
Washington’s marijuana market is a is a fraction of what California’s market is already and California’s marijuana market is expected to grow to be four or five times larger than Washington’s in the next could or years.
 
That alone is huge. But it gets even better.
 
IONIC has partnered with a division of Origin House to do it.
 
As a result, IONIC doesn’t have to invest as much into building out a massive sales, marketing, and distribution network which allows it to get its products in more retail outlets faster than it otherwise would have.
 
That’s truly great news. But still, it gets even better.
 
The value of being in California is massive.
 
As stated above, Cresco Labs acquired California distributor Origin House for C$1.1 billion just to get a stake in the California market.
 
IONIC, on the other hand, is getting into California through a divisino of Origin House, but it’s not costing IONIC $1 billion to do it.
 
All in all, this is a big deal for IONIC Brands. But again, the market didn’t react well to it.
 
IONIC shares fell 13% following the announcement of the California distribution deal with Origin House.
 
It’s a bit of a surprise reaction to such a positive development. But it’s also an opportunity.
 
Earlier we said, Wall Street just can’t see the long-term forest through the short-term trees.
 
This is a major deal for IONIC Brands and it should be viewed as a very strong move in the long run, but the short-term is winning out…at least for now.
 


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Tags
IONIC BRANDS, Investing, Marijuana Investing