Marijuana sales started in Illinois on January 1. Illinois is the 11th US state to legalize recreational marijuana. The demand for adult-use marijuana is high in the state. So far, Illinois has had the most successful marijuana launch compared to other states. We’ll discuss how the marijuana industry is shaping up in Illinois two weeks after it went live.
Illinois marijuana sales are rising
Illinois saw an increase in marijuana demand and sales on the first day after it went live. The state reported $3.2 million worth of recreational sales from 77,128 transactions and 37 dispensaries on the first day.
The Daily Herald reported that Illinois saw $19.7 million in marijuana sales from 495,385 transactions in the first 12 days. The average transaction price was $40.
Toi Hutchinson, senior adviser to Governor J.B. Pritzker for cannabis control, said, “Illinois had a far more successful launch of cannabis than many of the other states that have legalized, but this is about more than money, it’s about starting a new industry in a way that includes communities left behind for far too long.”
How is the Illinois cannabis industry shaping up?
However, things weren’t all smooth for cannabis in Illinois. I don’t think that the state expected such a surge in demand. As a result, Illinois faced supply shortages. Regulators discovered that some dispensaries are stockpiling marijuana from growers. Stockpiling causes supply shortages for other dispensaries. The Illinois Department of Financial and Professional Regulation is investigating the matter. The department sent warning letters to dispensaries clearly specifying that stores aren’t supposed to illegally source products from one particular grower. Some companies that are cultivators and own the dispensaries could be doing this to limit products available to competitors. As a result, regulators are trying to ensure that all stores have a variety of products and don’t face shortages. Dispensaries also face shortages of medical cannabis products—a concern in the state.
Illinois is the first state to legalize cannabis through the state legislature. However, legalization faced some opposition. State Representative Tim Butler, R-Springfield, opposed legalization. He thought that Illinois wouldn’t utilize the tax revenue from cannabis sales correctly.
Since marijuana isn’t legal federally, the tax revenues will go to the state. The Daily Herald detailed the breakdown of marijuana sales tax revenues:
- 35% goes to the state’s general fund.
- 25% goes to the program that aims to help communities most affected by the criminalization of marijuana.
- 20% will go to address substance abuse and mental health.
- 10% will be to pay the state’s bills.
- 8% will be for local enforcement.
- 2% will fund a public education campaign to study the effects of legalization.
Cannabis legalization could be a boon for cannabis companies
Canadian cannabis companies have successfully launched their Cannabis 2.0 products in Canada. The US states that have legalized marijuana are also enjoying edibles and vape products. However, recreational marijuana is still illegal in most states. Therefore, it’s difficult for cannabis companies to benefit in a country that has a huge demand for cannabis-infused edibles and beverages. CNBC reported that it’s one of the reasons why Constellation Brands chose to invest in Canopy Growth (NYSE:CGC) (TSE:WEED). The company saw the demand for alcohol declining, while cannabis demand is rising. Even consumers who want cannabis in the medical form are inclined to try it in the edible and beverage format versus smoking it.
While Canada is struggling with oversupply, US states are suffering from undersupply due to federal restrictions. The FDA is still hesitant about CBD-based products. Canopy Growth and Aurora Cannabis plan to expand their CBD markets in the US.
Federal legalization would certainly be a boon for marijuana companies. After the disaster in 2019, it’s essential for cannabis companies to drive revenue and profitability growth this year for their stocks to rebound. Many other states like Florida and New York want to legalize marijuana this year. President Trump still hasn’t given his opinion about legalization. We aren’t sure if federal cannabis legalization is possible this year.
Marijuana companies’ performance in 2020
However, marijuana companies have started 2020 on a good note. Aphria (NYSE:APHA) and OrganiGram (NASDAQ:OGI) have posted impressive results. The results have lifted the whole sector. As of Thursday, Canopy Growth stock has risen 15% YTD (year-to-date), while Cronos Group (NASDAQ:CRON) stock has risen 6%. Aphria and Aurora Cannabis have fallen 1% and 0.46%, while OrganiGram has risen 39% YTD.
We hope that 2020 will be a good year for cannabis companies. However, like any other sector, cannabis stocks also carry risks. Investors should be cautious before investing.
Stay with us for the latest updates on the cannabis industry.