The Cannabis Microcap Profiting on New York Legalization

On March 31, New York became the 16th state to legalize cannabis.

Legalization of the plant is effective immediately, with legal recreational sales expected to begin in 2022.

New Yorkers can now possess and smoke marijuana if they’re over the age of 21. (Medical marijuana was already legal in the state.)

This means the New York (the fourth-most-populous state in the U.S.) cannabis market is on the verge of generating billions of dollars in sales.

I think the market could be worth $7 billion once fully established.

That’s why every cannabis company in the country is going to want in.

But one of my favorite microcap cannabis companies is already there…

Sitting Pretty

Vireo Health International (OTC: VREOF; CSE: VREO) is perfectly positioned in front of a tidal wave of new business heading its way.

Headquartered in Minneapolis, Minnesota, Vireo Health cultivates cannabis, manufactures pharmaceutical-grade cannabis extracts, and sells its products through its network of Green Goods medical marijuana dispensaries and other retail and third-party dispensaries.

The company grows and processes cannabis in eight markets and operates 16 dispensaries. Medical cannabis products are being sold to patients in Minnesota, New York, Arizona, New Mexico, Maryland and Ohio.

The move to legalize recreational marijuana is not a surprise to Vireo. The company has been positioning itself in the New York cannabis market for the last six years.

I expect the New York cannabis market and the New Jersey market, which legalized adult-use marijuana in February, to triple in size within the next few years.

Based on the experiences of other states that legalized recreational marijuana, the transition is most beneficial to companies with an existing presence in the market, with sales increasing two to four times within a year.

Vireo established itself in New York in 2015 and has quietly become one of the top cannabis companies in the state.

Most investors – even those more familiar with cannabis stocks – haven’t heard of Vireo.

But with legalization now official in New York, I think a lot more investors are going to become familiar with it, particularly larger cannabis companies, institutional investors and savvy individual cannabis investors all looking for a way to get in on the coming action in skyrocketing cannabis sales.

Similar to other successful cannabis companies, Vireo has done a great job of focusing on markets where it has the best opportunity for success.

That means limited-license states with opportunities for significant growth and near-term legalization prospects.

That approach is about to bear fruit in New York. Vireo won a New York license back in July 2015. At the time, it was competing for one of only five medical cannabis licenses.

The company now has four dispensaries in the state in Queens, White Plains, Albany and Binghamton.

Vireo Health of New York has also launched the first medical marijuana home delivery service in the New York City area. The service is available throughout New York City, Westchester, Rockland, Nassau and parts of Suffolk and Putnam counties.

Currently, as one of 10 registered organizations licensed to grow, manufacture and sell medical cannabis, Vireo Health has been deemed an essential business by the New York State Department of Health.

Let’s Buy Ahead of Everyone Else

The financial picture was already looking brighter for Vireo. Now with the revenue I expect the company to generate from New York, things are going to get a whole lot brighter.

Here are the highlights from 2020:

• Total revenue of $49.2 million increased 64.3% year over year, driven by organic growth and the successful execution of management’s core market strategies during the year.
• Gross profit increased by $9.8 million to $17.1 million, compared with $7.3 million in 2019.
• During the year, Vireo completed the expansion of its Green Goods retail stores in Minnesota. All eight of Vireo’s dispensary licenses in Minnesota are now operational.
• The company opened four new Green Goods dispensaries and ended the year with 15 operational dispensaries across its nationwide operating footprint.
• Gross profit margin improved to 34.8% in 2020 from 24.5% in 2019.
• The loss of $5.2 million in 2020 improved compared with a loss of $16.9 million in 2019.
• Selling, general and administrative expenses as a percentage of revenue improved year over year to 53.6% of sales compared with 83.6% of sales in 2019.
• The company ended fiscal year 2020 with $25.5 million in cash on its balance sheet.

And Vireo has made further progress this year…

In January, the company announced that it completed the purchase of four cannabis licenses in Nevada. These licenses allow for the cultivation and production of cannabis products for both medical and adult-use purposes.

In March, the company completed and received regulatory approval of its 110,000-square-foot cultivation facility in Massey, Maryland. Vireo also opened its first retail dispensary in Frederick, Maryland.

There are only three analysts covering the company currently, meaning Vireo is still flying under most investors’ radars. That works to your advantage, as the shares are still cheap.

No major brokerage firms are covering the company… something that I think will change this year.

Don’t wait until legal cannabis sales start to take place in New York. The time to buy is now, before that happens.

The stock is trading 38% below its 52-week high reached in early March. Take advantage of this window of opportunity.

Action to Take: Buy Vireo Health International (OTC: VREOF; CSE: VREO) at market. Use a 25% trailing stop on your position. (CSE stands for Canadian Securities Exchange.)