Florida’s potential unleashes stock rally

Investors are feeling pretty confident about Floridians passing the adult-use legislation before them that stocks with exposure to that state have rallied.

Viridian Capital Advisors reviewed the stocks that have a presence in the state and stand to gain if voters pass what is known as S3. They found valuation increases ranging from 6% to 350%.

“We calculated the potential impact of adult rec in Florida by assuming that adult rec would have a 2.25x multiplier effect on retail sales on a run rate basis. Florida retail sales for 2024 will be approximately $2.1B spread across an average of 650 dispensaries (691 as of 10/25/24) for an average revenue per dispensary of $3.2M. The average revenue gain per dispensary of $4.0M was used to calculate each company’s incremental revenue gain from adult rec.”

Viridian analysts calculated that the additional revenue could be a multiple of 2 times, higher than how the rest of the group is measured. Viridian noted that by nature of the licenses awarded in the state, the top ten companies own 84% of the total dispensaries.

“The bars on the graph show the two-week stock gains for the 15 largest market cap U.S. MSOs. The green bars indicate companies with a Florida presence, while the blue bars are companies with no Florida presence. Recent gains appear to be related to Florida. Two themes are driving cannabis stock prices: Florida rec and rescheduling. The graph tries to evaluate the relative importance of each theme.”

Some market watchers believe that even if S3 doesn’t pass, the existing cannabis companies will just lean into hemp products and would still benefit. Florida’s cannabis market is strong even without legal adult-use sales. The state averages sales of roughly $140 million a month, with a record $173 million sold in March.

Despite that market strength, spending on the campaign for full legalization has been robust. Ballotpedia reported in September, “In 2024, there is a new record-holder for the most expensive marijuana legalization measure: Florida Amendment 3. With $105.08 million between supporters and opponents, Amendment 3 has already surpassed California Proposition 64 by $77.94 million.”

Rescheduling holds less promise

The hope for rescheduling is less enthusiastic as the analysts believe that investors see that resolution as more drawn out and not as imminent.

“Gains from S3 are calculated by taking our estimate of the lower taxes from the elimination of 280 and valuing these gains by applying the average 2025 EBITDA multiple for the group of 6.6x grossed up to recognize that 280e savings are after-tax savings. The result stated on a per share, percentage gain basis, is shown by the purple line on the graph,” read the report.

Still, companies will benefit from an improved tax status with rescheduling and that alone boosts even the companies with a small presence in the state.