Let’s talk about the Buckeye state. Home of Lebron James, the Rock & Roll and NFL Halls of Fame and the birthplace of the first man on the moon, Neil Armstrong (fun fact: Neil’s mission to the Moon has been immortalized with its very own Apollo 11 Cannabis strain). Ohio is the 7th largest state in the union, with a population of 11.6 million and a median household income of US$57,000. Body and Mind Inc. [OTC:BMMJ, CSE:BAMM] opened their retail medical dispensary in February of 2019 and was one of the first dozen dispensaries to open after Ohio legalized medical cannabis. Body and Mind and in state partner NMG Ohio is near completion of a processing facility which will allow Body and Mind branded products including oils, extracts and concentrates to be created and established in the growing Ohio market.
Currently, Ohio has legalized medical marijuana but has yet to go full adult recreational. It is a limited license state with only 57 dispensary licenses, although, more recently, the state has been considering adding an additional 73 licenses. As we look across the landscape of legal states, the large population of Ohio and limited number of licenses present a strong opportunity for current operators in the state who have first mover advantage.
Most constituents now believe that it is only a matter of time for the state to approve adult recreational, as overall sentiment has clearly shifted around cannabis legalization across the United States. Additionally, there is a push at the federal level of the US to remove marijuana from the list of controlled substances.
What are the regional comparisons?
Now the onus turns to the state representatives. The groundswell of national US interest in marijuana is growing, and with federal legalization looming the state will be forced to make up its mind on passing and regulating adult recreational marijuana. According to a recent poll from Pew Research Center, over 91% of Americans believe that marijuana prohibition should end and cannabis should be legal for either medical or recreational purposes. Plus, with neighboring states having gone full recreational in recent years (the experience has been almost universally positive) the pressure is only increasing to get something done.
An Ohio Rec launch would build off a positive medicinal roll out
By all accounts, Ohio’s experience on the medicinal side has been almost entirely positive. Online registration for medicinal patients was launched in December 2018, and there are now almost 170,000 patients across the state. In total, 67 medicinal retail dispensary licenses have been issued across Ohio with potential expansion to 130 dispensary licenses based on the growth of medical registrations. There are about 52 stores currently in operation, along with an additional 25 cultivators, 24 processors and 3 testing facilities. Ohio has seen exponential growth in the medicinal cannabis market – both in terms of the number of patients, the total revenues, and the revenue generated per patient.
There have been little or no hiccups on the medicinal side; everything appears to be operating as it was intended. No reports of increased crime or traffic accidents. No major increases in addiction incidence. The only drawback people can really point to in the state is just how few dispensaries there are, with about 20% of the population (and patients) having to drive more than 30 miles to reach a dispensary. In 2020, Ohio’s second year of legal medicinal sales, total state-wide legal medicinal cannabis sales increased 4x.
Look North West, Young Fella – Michigan As a Case Study
Just north/west of Ohio is their Lake Erie cousin, Michigan, which has been legal on the medicinal side since 2008, but was a patchwork of selective enforcement with dispensaries operating in what could be best described as a grey-area. The industry was transformed in late 2016 when Governor Rick Snyder signed three bills that effectively launched the industry as we know it today. Michigan’s new laws allowed dispensaries to open and made topicals/edibles available to Michiganians. Since Michigan legalized medicinal cannabis, state-wide revenues in that channel have climbed to US$474 million. This is over 2x the current size of the Ohio medicinal market, despite a population base that is 20% smaller in Michigan.
In 2018, Michigan concluded that medicinal cannabis would not be the downfall of society and went live on full adult recreational, officially launching the program across the state in December 2019. The recreational market in Michigan has been growing steadily each month since inception, with 2020 revenues finishing at US$440 million. Sales have continued to grow in 2021 as the cannabis infrastructure build continues, with March sales coming in at a US$1.2 billion run-rate on the rec side and US$600 million on the medicinal side. It is widely expected that the total Michigan market could surpass US$3 billion in sales in the next couple of years.
So How High Can Sales in Ohio Go?
We often hear people point to Michigan’s cannabis culture, something we rarely ever hear about Ohio, but the data suggests they are not all that dissimilar in terms of actual usage patterns. With Ohio you have a bigger state, similar regulations, and cannabis evolution/timeline to Michigan, along with comparable population demographics and cannabis usage. If we use Michigan as a baseline, it is conceivable that Ohio could be at least a US$3 billion marijuana market in the not-so-distant future.
What does it all mean for Body and Mind?
Body and Mind has developed early mover advantage in Ohio and continues to add operations. The store is performing extremely well, and the new production facility should help build the brand and improve company margins. The hardest part about entering limited license states is getting your foot in the door – applications are onerous, and few get accepted. However, with the application component in the rear-view mirror and the company being established in the market, Body and Mind is now positioned to become a significant player in Ohio.
One of Body and Mind’s facilities in Ohio
If we simply assume the company maintains their current Ohio market share of dispensaries (1.7%), production (4.2%) it would imply a US$60+ million revenue opportunity assuming the state hits a US$3 billion total revenue run-rate post full legalization. In comparison, in the company’s most recent quarter the revenue run-rate came in at US$26 million. For the entire business! Should the company be successful in potentially building an even more significant presence in Ohio the possible revenue opportunity could be even greater.
The information and recommendations made available through our emails, newsletters, website and press releases (collectively referred to as the “Material”) by Sophic Capital Inc. (“Sophic” or “Company”) is for informational purposes only and shall not be used or construed as an offer to sell or be used as a solicitation of an offer to buy any services or securities. In accessing or consuming the Materials, you hereby acknowledge that any reliance upon any Materials shall be at your sole risk. In particular, none of the information provided in our monthly newsletter and emails or any other Material should be viewed as an invite, and/or induce or encourage any person to make any kind of investment decision. The recommendations and information provided in our Material are not tailored to the needs of particular persons and may not be appropriate for you depending on your financial position or investment goals or needs. You should apply your own judgment in making any use of the information provided in the Company’s Material, especially as the basis for any investment decisions. Securities or other investments referred to in the Materials may not be suitable for you and you should not make any kind of investment decision in relation to them without first obtaining independent investment advice from a qualified and registered investment advisor. You further agree that neither Sophic, its, directors, officers, shareholders, employees, affiliates consultants, and/or clients will be liable for any losses or liabilities that may be occasioned as a result of the information provided in any of the Material. By accessing Sophic’s website and signing up to receive the Company’s monthly newsletter or any other Material, you accept and agree to be bound by and comply with the terms and conditions set out herein. If you do not accept and agree to the terms, you should not use the Company’s website or accept the terms and conditions associated to the newsletter signup. Sophic is not registered as an adviser or dealer under the securities legislation of any jurisdiction of Canada or elsewhere and provides Material on behalf of its clients pursuant to an exemption from the registration requirements that is available in respect of generic advice. In no event will Sophic be responsible or liable to you or any other party for any damages of any kind arising out of or relating to the use of, misuse of and/or inability to use the Company’s website or Material. The information is directed only at persons resident in Canada. The Company’s Material or the information provided in the Material shall not in any form constitute as an offer or solicitation to anyone in the United States of America or any jurisdiction where such offer or solicitation is not authorized or to any person to whom it is unlawful to make such a solicitation. If you choose to access Sophic’s website and/or have signed up to receive the Company’s monthly newsletter or any other Material, you acknowledge that the information in the Material is intended for use by persons resident in Canada only. Sophic is not an investment advisor nor does it maintain any registrations as such, and Material provided by Sophic shall not be used to make investment decisions. Information provided in the Company’s Material is often opinionated and should be considered for information purposes only. No stock exchange or securities regulatory authority anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. Sophic and/or its principals and employees may have positions in the stocks mentioned in the Company’s Material and may trade in the stocks mentioned in the Material. Do not consider buying or selling any stock without conducting your own due diligence and/or without obtaining independent investment advice from a qualified and registered investment advisor. The Company has not independently verified any of the data from third party sources referred to in the Material, including information provided by Sophic clients that are the subject of the report, or ascertained the underlying assumptions relied upon by such sources. The Company does not assume any responsibility for the accuracy or completeness of this information or for any failure by any such other persons to disclose events which may have occurred or may affect the significance or accuracy of any such information.
The Material may contain forward looking information. Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible,” “projects,” “plans,” and similar expressions, or statements that events, conditions or results “will,” “may,” “could,” or “should” occur or be achieved or their negatives or other comparable words and include, without limitation, statements regarding, projected revenue, income or earnings or other results of operations, strategy, plans, objectives, goals and targets, plans to increase market share or with respect to anticipated performance compared to competitors, product development and adoption by potential customers. These statements relate to future events and future performance. Forward-looking statements are based on opinions and assumptions as of the date made, and are subject to a variety of risks and other factors that could cause actual events/results to differ materially from these forward looking statements. There can be no assurance that such expectations will prove to be correct; these statements are no guarantee of future performance and involve known and unknown risks, uncertainties and other factors. Sophic provides no assurance as to future results, performance, or achievements and no representations are made that actual results achieved will be as indicated in the forward looking information. Nothing herein can be assumed or predicted, and you are strongly encouraged to learn more and seek independent advice before relying on any information presented.