E159 - Florida, man! Look out California, Florida is going to be THE market.

Cy (00:00.558)
Welcome back to the high rise a laid -back data back conversation where we talk all things cannabis from products to market analysis through the lens of data My name is size Scott CEO of headset and I'm joined as always by Emily Paxia managing partner of Poseidon

emily (00:17.044)
Hi everyone, welcome to the high rise.

Cy (00:20.142)
Emily, it's great to be back and some big news. It seems like there's a lot of news these days. I think this is a headline that we talked about for the 2024 narratives and that's Florida. I'm sure everyone saw that Florida's adult use legalization has been approved for the November ballot. It was a bit of a...

I don't know, I guess kind of touch and go there for a minute. Had to go through the Florida Supreme Court and it did get approved. So I want to talk a bit about that. I want to talk about that process, how it got there, how it got through, some of the arguments against it. And then I want to dive into like the market, what makes the Florida market so exciting? What's it going to look like post legalization?

emily (01:05.46)
Yeah, and I think this market is so interesting due to the size of it, but also due to the change in the population that's occurred over the last four years since the pandemic. A lot of people have gone from New York and California to Florida, and obviously California is a place that's long enjoyed a market. So it's interesting to see what's going to be happening as the people who are now registered to vote in Florida look drastically different than the last time.

this effort was made on the ballot.

Cy (01:36.846)
Yeah, yeah. And the population of Florida is like 22 million, I think, from a recent census. It's a pretty sizable population. It is in the top three states. If you guys remember the episode we did where we kind of covered that, the top five, top 10 states by population, Florida's up there. I think it's right behind Texas, right? And you've got California in the lead. So if this was to go through...

emily (01:59.796)
Mm -hmm.

Cy (02:04.686)
Um, you know, we've got two thirds of the largest, most populated States in the country with adult use, um, cannabis and with, uh, you know, a new, new population composition that you're talking about, right. Continuing to grow. And I think a unique geographic position as well. Uh, when you think about the South and especially the panhandle of Florida and what they're surrounded by, right. Louisiana, Georgia, Alabama, right. Um,

emily (02:18.612)
Mm -hmm.

emily (02:33.524)
That's right.

Cy (02:33.55)
It's very different than some other markets that have legalized amongst many other legal markets, which we're seeing more and more of that as more states have cannabis legalization. For adult use, you're seeing, I don't know, it's not as big of an impact because they're surrounded already by legal markets, but this is a pretty unique one where it's kind of on its own out there.

emily (02:55.668)
It's on its own and it's also because of its geographic location. And for example, we know companies like Sunburn have a heritage story around how cannabis used to enter into the United States through smuggling in the seventies and sixties and seventies. And I think that, so there's like a deep market here, just like there is in California, but now companies are trying to build brands around this. And we all know that the medical market is wonderful. We want patients to have access.

But in terms of building a brand, having an adult use market that exists is the way to do it. And that's how you can reach a broader audience and forget the fact of all of the tourism that visits Florida annually throughout the year.

Cy (03:37.486)
Yeah, yeah, that's right. So yeah, this had to go through the Supreme Court and the Florida attorney general tried to block it, right? So the attorney general made the argument basically that the company backing the initiative, which is True Leave with the largest donation, was doing it for a for -profit basis, suggesting that the measure was like primarily driven by that.

And then in the past, the Florida Supreme Court has actually rejected initiatives, right? And so, you know, that's why we're here in the year 2024, still trying to figure this out. And they argued that they should keep that stance. But it sounds like the Florida Supreme Court justices quote, all but dismissed Moody's arguments. Moody being the Florida attorney general, basically saying,

emily (04:22.516)
Mm -hmm.

emily (04:31.316)
Yes.

Mm -hmm.

Cy (04:35.662)
that the amendment doesn't violate the single subject rule. The single subject rule is basically like a ballot has to just be around one thing. It can't be like a bunch of things. And one of the arguments the attorney general is making, well, we're gonna have to like, you know, do a whole bunch of new licensing structures and things like that. And they're like, well, actually, this has nothing to do with that. It says nothing about that. And actually, I'll link everyone to the ballot in the show notes. And you can see it's just editing the medical to kind of remove the word medical.

emily (04:45.012)
Right.

Cy (05:04.59)
uh, from a lot of the language. Um, I'm, I'm certainly oversimplifying it, but it doesn't talk about, you know, having to establish a new, you know, set up for issuing new licenses and new structure, the stuff that the attorney general was arguing. So it's kind of arguing something that wasn't really there. So they just dismissed it, uh, completely. So good news.

emily (05:22.9)
No, I mean, it's like they saw the nightmare that unrolled in California's legalization. It's like, what if we just took the medical stores and allowed those licensees to remain open and then become adult use stores? That would be pretty cool. But anyway, we had to really, yeah, it seemed smart. It seems like common sense, although I don't understand. We live in the upside down. But yeah, I thought it was actually pretty elegant the way that it was worded in Florida.

Cy (05:27.726)
Keep it simple.

Cy (05:38.094)
Yeah, right. Who would think that's a good idea?

Cy (05:52.814)
Yeah, yeah. It's gotten some backing. So yeah, 40 million in donations from True Leave. Yeah, exactly. To get that million signatures and you were mentioning that what some more donations had come in.

emily (05:57.62)
Some backing.

emily (06:08.052)
Yeah, I think this week 15 million more have come in from a lot of the operators that have exposure in Florida who had been kind of waiting to see if this issue would get resolved. And, and, you know, I was, I was laughing with the team. I was like, you know, you've lowered your bar when an, an issue get it rightfully getting on the ballot where the people can, the constituents can weigh in is like a celebrated moving cannabis. You know, you've you're due for a few W's.

It's like, no, people should have the right to vote on this issue. Like that is the deal. And anyway, we're happy about it. Happy to see, you know, TrueLeave definitely led the charge on this. I mean, TrueLeave is a massive exposure in Florida, was born in Florida and definitely has interest in it succeeding in Florida. But I know these operators also just want to see an adult use market because it's frankly time for this state.

Cy (07:03.182)
Well, the kind of volume that they do and we'll talk about the metrics. I mean it it's like a adult use market. It is crazy. It is crazy how much volume they do. And yeah, so certainly it took a lot to get it on the ballot 40 million bucks and then you know for a million signatures. That's a lot of money on a.

emily (07:08.596)
Yes.

emily (07:16.436)
Yep.

emily (07:23.508)
I have, yeah, just further to that on the medical patient volume, aside from California, I don't think I've ever seen a more high level enthusiast crowd than the Florida medical patients. And where you can see this in real time is on Reddit. Like I follow Florida Trees, I think, Florida Medical Trees. There's a couple of sites, but folks on there are sharing so much information about the different stores and products and.

To your point, I mean, it almost feels wreck in that sense or adult use in that sense, but...

Cy (07:57.582)
Reminds me of California before adult use. Very similar, right? Had a lot of like these adult use of rec undertones in the medical. Yeah. Yeah. So yeah, it's a, it's about time. So it's on the ballot, uh, this November, um, which is great election year. A lot of people will go out and vote. Uh, I hope, and it's got to hit 60%. Right? That's the thing with Florida. Yeah. So it's a, it's a bit more than.

emily (08:01.428)
Thanks, guys.

emily (08:05.364)
Yeah, exactly.

emily (08:23.54)
Mm -hmm.

high bar.

Cy (08:27.406)
It's a high bar. And so when you think about that and you think about other, other initiatives, um, that have passed with more than 60 % that were voter approved, right? Not every market is legalized by voters. Uh, actually many markets now are being legalized in the legislative branch of the right of, of the, of the state, which is also great. Uh, but when it goes to the voters, um, there's only been four markets that have beat 60 % over the last handful of years, uh, Washington, DC.

emily (08:43.284)
legislative action. Yeah.

emily (08:48.5)
Mm -hmm.

Cy (08:57.294)
which passed with 70 % Maryland in 2022. And I want to talk about Maryland today because Maryland I think is a great parallel to Florida, especially to, you know, taking a medical market that's working and turning it on and turning it over to adult use, right? So rebuilding. And since Florida is looking like it's going to do that, I think we can use Maryland data as kind of a good proxy for what Florida is going to look like.

emily (09:11.54)
Mm -hmm.

Cy (09:24.206)
But Maryland did pass 67 % and that was in 2022, right? So that was not too long ago. So more recent timeframe, New Jersey 67 % and Arizona 60%. Arizona is pretty red state. This was back in 2020 had a lot of competition, but just just squeaked through and had a pretty robust medical market there as well too.

emily (09:45.652)
No, that was, I mean, when I was on the board of MPP, Arizona was a grueling fight because the opposition which was coming, just so everyone knows that was funded by pharmaceutical money, was very strong and very vocal and the way these groups do, they tend to drive their campaigns with a heavy leaning in on fear. So it's usually about fear, it's about kids, it's about miss citing data around addiction and it's funny because it's coming from.

the exact companies that are perpetuating an actual crisis in our country.

Cy (10:19.246)
Fear seems to work historically. Maybe we need fear for the pro -legalization movement. This is what happens if you don't legalize. Your kids buying, yeah, right? Your kids buying stuff off the street and whatever, more access, you know, all that. Yeah, it's scary.

emily (10:20.628)
fear is a great tactic in politics.

emily (10:28.308)
Wait, this is actually a good idea.

emily (10:36.34)
Yeah. Yeah, it was, it was also, I mean, that was a very strong campaign by Sheldon Adelson in Las and Nevada as well. Um, so, you know, those, those campaigns are important and we should, we should absolutely pay attention to what has gripped, uh, people voting against it. And for that reason, I do want to, after you speak about Maryland, I want to raise what happened in Ohio, which we know voted to approve, but numbers changed considerably going into the final mile on it. So.

Cy (10:45.198)
Mm -hmm.

Cy (11:06.542)
Yeah, what were the, I mean, it wasn't 60%.

emily (11:10.036)
No, well, so what's interesting about Ohio is it actually was polling quite well throughout the year leading into probably the summer, late summer. It was above 60%. I think it was trending between 63 and 65%. As we got, and this is also the intelligence of these campaigns. As we got closer to the election, the opposition, which I have a feeling was the same source of this stuff, was.

leaning in heavily on fear tactics and fear campaigns and really pulled the numbers back. So much so that people I knew in the state who worked with political consultants were starting to actually get nervous that we were gonna break the threshold required in that state. So we know that that was an interesting ballot, because young people got out and we know this tends to, even though it's impressive as it skews older, even into the boomers.

They're pretty 50 -50, but as it gets into the younger voters, it skews much more toward pro -legalization. So we're there, but one of the things I'm hoping we're gonna keep in mind in Florida is to save some juice in the tank for the final weeks of this, because this, if we've learned nothing in the United States, it's a short attention span theater going into the ballot box, and we've got to get ready for the final push on this, because...

prohibitionists will come heavy at the at the closing bell.

Cy (12:34.126)
Yeah, and so this new donation from GTI, who was the other one? Was it Verono?

emily (12:41.044)
It was Verano, GTI, I think Terrace, and I'm sure there are other private groups involved, but those were some of the ones that were named in the update today.

Cy (12:51.342)
Now that's great. So yeah, I think hopefully we see more of that. It's certainly going to take money and it's certainly they're very motivated because they'll do very well with legalization. It's a good ROI should it get across the line, right?

emily (13:06.388)
Correct.

Cy (13:08.27)
So let's talk a little bit about metrics in Florida and the Florida market and you know what it's gonna look like. So start high level. We talked about population 22 million. I you know, compare that to California 39 million. So you're looking at like half the size, you know, little over half the size of California. Patient count almost 900 ,000.

emily (13:29.236)
Mm -hmm.

Cy (13:36.206)
I think the most recent accounts about 878 ,000 patients enrolled in the medical program, which is about 4 % of the population. So, uh, you know, one on a 20 ish, um, you know, 5 % of the population there, uh, has a medical, um, has access to medical, um, yet current sales are $2 billion in the last 12 months. Uh, you know, kind of rounding, rounding here, but $2 billion.

last 12 months versus 4 .4 billion last 12 months in California. Unbelievable, right? California, I mean, you know, Florida has a barrier to entry, right? Because you've got to get your doctor's recommendation because it's medical. And you know, the population of patients is, you know, a percentage of the overall population. So you're a tourist in Florida, you can't buy, right?

emily (14:08.404)
Unbelievable. Unbelievable.

Cy (14:32.046)
all these barriers, right? Yet they still do roughly, you know, half of the sales of California for roughly half the population of California in a medical world. Which is, yeah, which is pretty wild. Yeah, so that's these are the these are like kind of the tables to the baseline, right? This is where we're at today, right? And now, you know, it's going to hit the ballot November and.

emily (14:47.636)
It's really wild.

Cy (14:59.918)
Everything goes well, it passes. We've got six months from the passage to when adult use starts and it flips over, right? So it's really what six months from November gets us into May. So just about a year from now, yeah, we could see this whole thing kind of flip and we'll talk about what that's gonna look like. Now, as far as Florida, we've talked in the past, Florida has serious discounting going on.

emily (15:14.42)
Mm hmm. Yeah.

Cy (15:29.038)
It is, I think the number one state as far as discounts go, roughly 45 % discount on products, which is very, very high. And then in like a post -discount pre -tax world, kind of looking at the average price per gram, it's about five bucks, about $5 .20, kind of looking at how this equalized price, as we call it at headset, like the per gram price,

kind of fits in in most other markets. That's kind of where, you know, Florida would land on like an equivalence price. Now, that's really pretty cheap. And just to give, yeah, go ahead.

emily (16:08.884)
I mean, no, I mean, I would just be, I would be paying very close attention to the pricing in Michigan as an analog to probably what we should be expecting here in terms of on an adult use basis. Yeah.

Cy (16:25.134)
Yeah, so Michigan, Equivalence price, three bucks, $3 .13 as of March 2024. And it's been holding about there for the last few months. So it seems to be like this is the floor, but you never know. Yeah, I hope so. So Equivalence price is a per gram price. And this is interesting because we can take this and look at the OMMU, which is what the Office of Medical.

emily (16:39.06)
We've settled.

Cy (16:54.478)
marijuana, something in Florida, they publish a lot of stats, particularly on like the operators out there. So like you can look at, you know, the total ounces of flour that truly sells on a weekly basis or air or GTR or you name it, right? So you kind of come back into the type of revenue that they're doing, the type of sales that they're doing. Again, so this is kind of where we're at today. Category mix, you know, roughly what you'd expect, 42 % flour, 24 % vape.

emily (17:05.748)
Mm -hmm.

Cy (17:23.054)
16 % edible, I think concentrates like 8 % pre -roll after that or about six. So kind of the usual suspects, right? Flower and Holden steady at about 40%. This is just, you know, across the state, not looking at generational differences, which there always are. But that's kind of where we're at now. What I want to talk about is like, what is this going to look like? Right? So yeah, post legalization. So I have some looking at Maryland numbers.

emily (17:47.444)
Yeah.

Cy (17:52.974)
So Maryland legalized in 2022, right? The vote passed and then the stores open. And then yeah, that's when stores opened, right? July of last year, right? So looking at kind of Maryland numbers and what happened in Maryland, some interesting things happened, right? So one, average price went up, right? So it went from.

emily (17:58.932)
July 4th weekend, right?

Cy (18:19.918)
33 bucks, this is just average item price to 42 bucks, just to kind of give you a sense. So it's like a 30 % increase in average item price and discounting went down. Now discounting went from about 20 % in the medical world to like nine and a half percent. So basically halved the discounts right out of the gate, right? Since then, this is a July of 2023 and now to March, discounts are back at 17%.

So discounts have slowly climbed back up to where they were, but initially, they get chopped. And all this makes a lot of sense, right? All of a sudden it's adult use, there's probably supply issues, there's high demand. Let's raise the prices of the product, right? So our average item price is post -discount. So when we see the price go up 30%, that incorporates changes to discounts as well. Okay, okay, so.

You know, that's kind of what we're going to expect happening to Florida right now, right? So, you know, Florida average item price for flowers, like 24 bucks on the equivalence price, it's like five bucks, like we were saying, you know, that's after 45 % discount. So we can expect, you know, if it's going to look like Maryland, average item price is going to go up 30%, let's say. And then you couple that with just more volume. So more people being able to purchase and coming in. So higher priced products, more people buying.

emily (19:22.644)
Yeah.

Cy (19:47.79)
Um, we saw Maryland, uh, jump, uh, two times, 2 .25 times immediately as far as total sales. So, you know, more than double the sales, not triple the sales. Um, looking now kind of, uh, March to March, it's about 2 .4 times the sales in Maryland from when it was medical. Now, you know, there's a lot of, uh, different dynamics at play. Every state's different, you know, geographic positioning is different and so on.

But I do think given kind of the the framework was very similar you take the medical states and you just turn them or you take the medical operators and you turn them into adult use operators I think we can be seeing a floor of like 2 .2 a multiple Well into three I mean because Florida is a pretty unique area there in the south You know if if you you know like we've seen in other states if you can go across from Alabama to Florida pretty easily Right, you're gonna see a lot of sales

happening. So I think like a two and a half X is totally reasonable, if not more, right?

emily (20:51.124)
I would say I would have a couple of thoughts on that though. I do think we do need to be mindful of the like the Delta 9 stores and the which I think were are more pervasive in Florida than they were in Maryland upon the time of opening. So we'll have to see what Maryland's policy is around around that. And I would say I do think we'll see.

Cy (21:06.702)
Hmm.

emily (21:16.02)
some interesting product differentiation of still trying to address the needs of the existing medical patients who are very focused on high potency and price versus the can of curious folks who don't have a medical card and are interested in kind of getting into the space. We know those groups tend to be less price sensitive and are not necessarily doing a per milligram calculation on the dollar. So.

I think Florida could actually have some really interesting product dynamics where we see a real separation in terms of the targeting of who's the consumer on these things. And rightfully so that medical patients should have a better value on their products because they are taking them for a condition. And a lot of times that does merit a higher amount of consumption in many instances. But anyway, I just wanted to.

I do think there are some really interesting aspects to the Florida market that couldn't make for an interesting product profile there.

Cy (22:16.75)
Oh yeah, totally. Um, so much nuance and it's anybody's guess, um, what it turns into. But if we do see like a 2 .25 increase like Maryland did right out of the gate, I mean, that puts Florida, this is the big takeaway for me is it puts Florida at a 4 .5 billion run rate. Uh, if they did 2 billion last year, you know, times that by 2 .25, you're at 4 .5, which is a, uh, a bigger market than California right out of the gate, right. Um, with half the population.

emily (22:25.524)
Oh man.

emily (22:47.06)
And this is why I think this is one, you know, we talk about federal catalysts, but then we also talked about state to state catalysts. And I think Missouri surprised the hell out of all of us in terms of when that state turned on. I think Maryland was more in with what we thought would happen, but also a delight. I'm excited for Ohio and Florida's, I think, depending on what happens between, you know.

At this time, it stands to be a market moving catalyst in terms of what happens for the industry. And I'm excited because just like when people get to travel to Las Vegas, like when I used to do work for non -cannabis companies, you do a lot of research in Vegas because it's a cross section of America. People from every type of background and location in the country pass through Vegas at some point. And I think Florida is very much one of those places as well. So it's going to be...

a truly interesting situation and a great way to expose a wide range of consumers, both nationally in the United States and visitors from abroad to brands, products, form factors, retail experiences. I'm very excited for what's coming in Florida.

Cy (23:59.374)
Me too, we just need to get 60 % of that vote. So get out there if you're in Florida and make it happen.

emily (24:04.98)
and keep counteracting any false statements that the prohibitionists make because they love to state things without any factual support. So just keep putting the facts out there whenever they try to say the otherwise.

Cy (24:19.982)
That's right.