- The illicit cannabis industry is estimated at $50 billion yearly, much of which will move out of the shadows and become a legal market in the coming years. One research firm estimates the legal trade could be worth $21 billion by 2021.
- This is still an early industry, and the winners and losers will be sorted out over the coming years. Many have of the early entrants have gotten significant press, but newer up-and-comers that are less known may have just as much potential.
- Item 9 Labs (INLB) could be one of these as they finish a major expansion project on their Arizona cannabis cultivation and production facility, doubling capacity. New CEO Sara Gullickson is a well-known operator in the region and they're planning for a second major production facility in Nevada. Item 9 is already growing revenue quickly, 350% year-over-year growth in Q4 of 2018, making their facility expansion extra interesting. 2019 could be their breakout year as an up-and-coming producer.
How the North American Marijuana Industry Gets To $21B
NEW YORK, NY / ACCESSWIRE / April 2, 2019 / It's no secret that marijuana is set to become a big market in North America. It's now legal by prescription in over 30 U.S. states. Recreational use has been legalized in 10 states, and it's probably only a matter of time before that's the norm. Canada has legalized cannabis on the federal level, and it seems like it may be only a matter of time before it's accepted across the North American continent. The estimates vary, but over $50 billion in annual illicit sales may be moving into legal consumer goods in the coming years according to ArcView Market Research, and by 2021 the legal market could be worth $21.6 billion. 
For speculative investors, this boom has made for some big winners. Well-timed bets on some small companies have paid off, as with small-cap CV Sciences (CVSI) shares gaining about 700% in 2018 and MariMed (MRMD) shares gaining almost 400%, so many investors have smartly taken a basket approach to holding many of these high-risk endeavors. And now ETFs like Horizons Emerging Marijuana Growers Index (HMJR)(HZEMF) have emerged that can provide that approach in a single vehicle to own a portion of the sector.
One up-and-comer in the U.S. hasn't received much national press but could soon as they ramp up their cultivation and production business. Item 9 Labs Corp. (INLB) is a blossoming producer and wholesale distributor headquartered in Arizona, where it owns and operates one of the largest properties in the U.S. zoned to grow and cultivate the medical marijuana flower, at 50 acres. The company is focused on high-end products that can command a higher margin than many competing brands. Item 9 was ranked one of the fastest growing Arizona concentrate brands, according GreenEdge Retail Tracking, and their recent reporting showed Item 9 Labs increased concentrate sales by 234% in Q4 compared to Q1 of calendar year 2018. 
The company is nearing completion of a new 10,000 sq. ft. cultivation and manufacturing facility that will double their current space in Arizona to 20,000 in total. In 2018 the company partnered with Strive Wellness to construct and manage another 20,000 square-foot medical marijuana cultivation and processing facility in Pahrump Nevada, which is expected to be operational and to be producing legal medical marijuana products by the end of 2019.
Item 9 has been ramping up their revenue, and with their new facilities completed soon sales could increase dramatically in 2019 if they can fill the sales channel. Revenue increased to $1.017 million in the quarter ending December 31, 2018, from $0.224 million in the year-ago quarter, or 350% growth. Revenue in this first fiscal quarter was also more than the entirety of Item 9's 2018 sales! 
New CEO Sara Gullickson is known in the SW as a capable cannabis operator, and was selected by Marijuana Business Magazine for its Women to Watch in 2019 list. She founded Dispensary Permits and DispensaryTemplates.com - acquired by Item 9 in 2018 - which own dozens of cannabis related domains and an email database of over 24,000 subscribers, with more than 60,000 unique site visitors per month.  Item 9 also recently added two more medical cannabis executives to their advisory board in Donald Burton and Larry K. Lemons, with experience at The Harvest Foundation of Nevada, Sanofi (SNY) and MariMed Advisors (MRMD).
The valuations in this growth industry are impressive, most companies being valued as a product of their current and future sales as they all scramble to capture as many accounts as possible before turning to the bottom line. MariMed Inc. (MRMD) has a $750 million market capitalization and revenue of $9.9 million in the trailing twelve months. Tilray (TLRY) has a market capitalization of $6.7 billion and revenue of $32.7 million in the last twelve months. Cronos Group (CRON) had only $11.71 million in TTM sales yet has a market valuation of $3.77 billion.
Capacity is key which is why Item 9's Nevada and Arizona expansions are so important right now. If they can replicate and continue growing on their $1 million in quarterly sales at the end of last year, it's within reason to think Item 9 could be doing $4 to 6 million in annual revenue this year, and the growth isn't likely to stop. Based on their recent growth metrics and with Arizona's additional capacity to be completed soon, INLB could be a top name to know in 2019.
About One Equity Stocks
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