More than two years ago, California’s recreational cannabis market opened, and this represented a major milestone for the industry. When California went recreational, many analysts expected to start to see US cannabis companies grow faster than Canadian cannabis companies (from a revenue standpoint). Although cannabis was classified as a Schedule I substance and considered to be illegal at the federal level when California’s recreational market opened, Canadian analysts believed that the rewards outweighed the risks and billions of dollars were raised for US cannabis companies in a very short period of time.

The US cannabis industry is growing at rapid rates and is an industry that is barely in the first inning of a multi-decade growth cycle. So far this year, leading US cannabis retailers have been putting up impressive numbers and are generating more revenue than the leading Canadian cannabis companies. We find this to be significant since cannabis is legal at the federal level in Canada and companies can export to international markets where cannabis is legal.

Several leading Canadian cannabis companies are generating a substantial amount revenue from international markets and this is a trend that will not last forever. Once cannabis is legalized in the US, these operators will be able to expand into international markets and we expect to see US companies capture significant market share in international markets.

Operating a cannabis company in the US is not as easy as many people expect and when we analyze an operator, we conduct significant due diligence on the management team to better understand the previous industries that they have worked in and to learn about the track record that is associated with the team. We prefer management teams that are led by a team that have diverse skills sets and have proven track records as it relates to operating in the best interest of shareholders.

Today, we want to highlight two US cannabis companies that the market had high expectations for when they went public. The companies are Planet 13 Holdings Inc. (PLTH.CN) (PLNHF) and MedMen Enterprises (MMEN.CN) (MMNFF). We believe that Planet 13 has lived up to the hype while MedMen has not and want to provide an update on these operators.

We believe that these operators provide a diverse look at how cannabis businesses have performed as of lately. When you compare the performance of the two operators, Planet 13 stands out as the better business and we believe that this is a testament to the management team and how they invested in the development of a cannabis delivery service in Las Vegas ahead of the COVID pandemic.

MedMen has not lived up to expectations and the cannabis retail has a bleak future. During the last year, there have been significant changes made to MedMen’s management team but it seems to be too little, too late. During this time, the US cannabis retailer made a lot of investments and acquisitions when valuations were near all-time highs and this has put additional pressure on the business.

From a balance sheet standpoint, MedMen is in a tough spot. During the last two years, the company has taken on a lot of debt capital and we expect to see the business have trouble making the interest payments. When you combine a weak balance sheet with a large portfolio of assets, you have a business that is stretched extremely thin and we expect to see the company sell several cannabis assets to raise capital to pay the interest on the debt and to execute on strategic markets.

The focus on a limited number of markets represents a major change of strategy for MedMen. Initially, the company was trying to become the largest cannabis retailer in the US and was buying up assets left and right. MedMen was opening beautiful looking dispensaries in extremely expensive areas in Miami Beach and New York City (on 5th avenue). We believe that the business got a little ahead of itself in these markets and spent too much on assets in states that have a small cannabis market when compared to California and Colorado.

Planet 13 has executed on a more targeted growth strategy as it relates to the US cannabis market and has been capitalizing on the Las Vegas cannabis market. The US cannabis company has plans to expand into California and replicate the success that it has had in Las Vegas. We are favorable on how the management team has been able to ramp up sales numbers post-COVID and this is a trend that we are excited about.

One the US market is able to get COVID under control, we expect to an influx in demand for cannabis from Planet 13. We attribute the growth potential to the tourism market and expect the company to start generating record amounts of revenue once people start traveling to Las Vegas again.

In the early months of the pandemic, we had the chance to speak with a member of the Planet 13 investor relations team and were impressed with the data that he was providing. From a cannabis delivery standpoint, the company is the leader in Las Vegas, and we will monitor how the business continues to capitalize on this market.

During the last month, Planet 13 has been an outperformer and the shares have been surging higher. During this time, Canaccord Genuity raised its price target on the US cannabis company and we are favorable on the amount of potential catalysts for growth that Planet 13 has on a going-forward basis.