Mighty Minnesota
The Launch of Adult-Use Sales Is a Gamechanger
Minnesota may very well be the most important and lucrative cannabis market in the country. The state legalized cannabis at the end of 2022, but it has been painfully slow in allowing adult-use sales to begin. That finally changed this week.
Why have I been laser-focused on Minnesota rather than other states like Florida or Pennsylvania?
Because there are only two operators in the entire state of 5.8 million people. Even more compelling, Minnesota is bordered by North Dakota, South Dakota, Iowa, and Wisconsin—all states where cannabis sales remain illegal. The combined population of these states, plus Minnesota, is more than 16.6 million.
Let me repeat that for those in the back:
THERE ARE CURRENTLY ONLY TWO OPERATORS SERVING THE ENTIRE STATE OF MINNESOTA.
Those operators are Green Thumb (OTC: GTBIF) and Vireo (OTC: VREOF).
I estimate that, together, they have about 60,000 square feet of cultivation capacity for adult use, plus another 60,000 for medical. Meanwhile, Minnesota’s own analysis shows the state needs between 1.5 million and 2 million square feet of cultivation.
Let me repeat that again:
THERE ARE ONLY 60,000 SQUARE FEET OF CULTIVATION FOR A STATE THAT NEEDS UP TO 2 MILLION.
Now, to caveat the bold and ALL CAPS: Minnesota did issue about 50 licenses this summer, including social equity licenses for cultivation. Tribal cultivators are also coming online. But the gap between what is needed and what exists today is one of the largest I’ve ever seen.
And remember, the cannabis industry isn’t exactly flush with capital right now. In fact, there is very little capital available, so additional cultivation capacity is unlikely to come online quickly. The one exception may be Grown Rogue (OTC: GRUSF), which won a license in June and could be operating next year.
This isn’t rocket science—it’s Econ 101.
Massive, outsized sales and profits are most likely to accrue to the two current operators, with fast followers like Grown Rogue benefitting later.
For Green Thumb, our rough math suggests Minnesota could add as much as $50 million in incremental EBITDA, on top of its current $332 million run rate. Much of that EBITDA should convert to free cash flow. So, is it any surprise that on the same day Green Thumb announced adult-use sales, it also announced a $50 million share buyback? With an enterprise value of about $2 billion, this is a strong boost—and will further separate Green Thumb from other large cannabis companies that are struggling to show growth.
For Vireo, the impact is transformative. The company has already been recapitalized by Chicago Atlantic and has merged with four other operators. As of Q2, Vireo was running at about $100 million of annualized EBITDA. Minnesota could add another $30–$45 million. On a market cap of roughly $500 million, Vireo suddenly looks quite undervalued if it can generate $130 to $145 million of EBITDA next year with 30–45% growth.
For Grown Rogue, the effect could be even greater. My estimates suggest Minnesota could eventually generate more than $20 million of EBITDA for the company once its facility is built out—representing a 200–300% increase from current levels. With a market cap of around $125 million, Minnesota alone may ultimately be worth as much as the entire market cap of Grown Rogue today.
This is what makes Minnesota so special. Instead of dozens of operators benefitting, there are only two today—Green Thumb and Vireo—with Grown Rogue poised to join. The state has already been primed for success through hemp beverages, which now account for 15–20% of liquor store sales. Our largest beverage investment, Uncle Arnies, is #1 in the state and continues to grow every month, proving demand for THC is extremely strong.
Investors have been sleeping on Minnesota for too long. As sales and profits ramp, companies operating in Minnesota will separate themselves from peers stuck in flat or negative growth markets. Who would have thought that the land of 10,000 lakes would become ground zero for the future of cannabis?