Cannabis in America: Investment Opportunities in the World’s Largest Cannabis Market Matthew Pallotta, Analyst
[email protected] 647-253-1194 Andrew Semple, Associate
[email protected] 416-687-6656 August 12, 2019 SPECIAL SITUATIONS AUGUST 12 2019 CANNABIS IN AMERICA INVESTMENT OPPORUNITIES IN THE WORLD’S LARGEST CANNABIS MARKET Executive Summary Our thematic provides an analysis of the investment opportunity presented by the US cannabis industry and builds a case for its attractiveness both in absolute terms and relative to other cannabis investment opportunities in Canadian and international markets. We examine the legal cannabis industry in the US and assess the landscape from the perspective of the competitive environment, financial and valuation metrics, regulatory and legislative backdrop, merger and acquisition activity, and lay out our key investment criteria for assessing operators in the sector. Our analysis also has a specific focus on the group of businesses referred to as Multi-State Operators (“MSOs”), which we feel present the most attractive means for investors to gain exposure to the US cannabis opportunity, due to a number of advantages over their smaller, single-state or regional peers, in terms of the scale of the business, access to capital, and exposure to key markets across the country, amongst others. The $60B Opportunity: US Presents the Largest Addressable Cannabis Market in the World We estimate the long-term potential of the legal US cannabis market to be ~$60B annually, using our estimates for average spending per user and usage rates, and under the assumption that recreational cannabis is eventually made legal across all 50 states.