West Virginia and its roughly 1.75 million people could be in for a big change soon.
Under state law, medical-use sales of cannabis are legal, but state Rep. Danielle Walker (D-Monongalia) earlier this month introduced House Bill 2091, which would allow recreational cannabis sales, and decriminalize the possession of 1 ounce or less of cannabis. The next step for the bill would be a review by the West Virginia House of Health and Resources Committee.
Medical marijuana has been legal in West Virginia since 2017, but it has been a slow rollout. The Office of Medical Cannabis first allowed patients to register in February 2021, and the first medical dispensary didn't open until November 2021. The state is making up for lost time, though, and as of this month, the agency reported it had 18,660 registered medical marijuana patients
West Virginia's Republican governor, Jim Justice, and its Republican-dominated legislature would be obvious stumbling blocks for any bill supporting adult-use marijuana sales. However, the West Virginia legislature is considering a bill to trim the state's personal income tax and taxes on marijuana sales would be an alternative to replace funds lost by cuts to a state income tax. Asked about his opposition at a 2021 town hall meeting, Justice said while he has been against allowing recreational sales of marijuana, he is "weakening on that position....The medical community tells me the legalizing of marijuana from a recreational standpoint has lowered their drug problems."
If West Virginia does legalize recreational sales, several companies would benefit, particularly multistate operators (MSOs) Verano Holdings (VRNO.F -0.82%) and Trulieve Cannabis (TCNNF -1.44%) because their size and scope would allow them to quickly ramp up production and sales in the state. There are only 10 cultivation permits in West Virginia, and Trulieve and Verano each have one. They are among the nine growers in the state already operating.
The case for Verano Holdings
Verano, operating under the name Zen Leaf, has four medical-use dispensaries in the state, in Wheeling, Westover, Clarksburg, and Morgantown, plus the option to open three more. Nationally, it has 122 retail dispensaries and eight more in the works, across 13 states, including four of the six that border West Virginia. While federal laws prohibit the transportation of cannabis across state lines, the proximity of Verano's stores in adjacent states will help it to better use personnel and marketing.
The company's shares are down 76% during the past year, but I'm still bullish on its long-term chances. Its strong brands would benefit from the introduction of recreational sales in the state. In the third quarter, 70% of Verano's revenue came from wholesale sales. Overall, through the first nine months of 2022, the company reported revenue of $653.5 million, up 24%, year over year, with net income of $7.4 million compared to a loss of $16.5 million in the same period a year ago. It booked adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $244.8 million, up 1% year over year.
What I like about Verano is that it has been able to expand its footprint while staying profitable, something few other MSOs have been able to do.
Trulieve is ready to dominate another market
Trulieve operates 182 dispensaries across nine states. Its stock is down a whopping 73% over the past year, but investors who overlook the company's potential are making a mistake. Until just last year, Trulieve was one of the few MSOs regularly showing a profit. As it is, the company has 19 quarters of positive adjusted EBITDA.
Trulieve's business model is to focus on taking over one market at a time and utilize economies of scale within each state. First, its focus was Florida, where it now has a state-leading 124 dispensaries and two more planned this year. Then, thanks in part to its acquisition of Harvest Health and Wellness in 2021, it became the biggest cannabis retailer in Arizona.
With the opening of its new dispensary in Huntington, West Virginia, Trulieve now operates nine of the 40 dispensaries in the state -- the most of any company. Its other dispensaries are in Belle, Hurricane, Milton, Parkersburg, South Charleston, Weston, and Morgantown (where it has two). This past month, it also launched two new brands, R.O. and Modern Flower, in the state.
Through the first nine months of 2022, Trulieve reported revenue of $938 million, up 48%, year over year. Its adjusted EBITDA was $315 million, up 11% over the same period in 2021. However, its growth is coming at a cost. Through those nine months, it said it had a net loss of $169 million, compared to net income of $89.6 million in the same period a year ago.
Because of that, the company, after its recent period of expansion, will cut costs. Trulieve is due to report full-year earnings on March 1, but in the third quarter, it forecast 2022 revenue would be in the $1.25 billion to $1.3 billion range, compared to $938.4 million in 2021. It also predicted its 2022 adjusted EBITDA would be between $415 million and $450 million, compared to $384.6 million in 2021.
Trulieve has already shown it can be profitable, and like Verano, it operates in Ohio, Maryland, and Pennsylvania. Those operations in states adjacent to West Virginia should give it an edge if it needs to expand its operations there for recreational sales.
