Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Viridian Capital Chart of the Week: How Big of A Deal Would Pennsylvania Going Rec Be?
- Viridian’s Chart of the Week looks at the potential sales increases from Pennsylvania approving recreational sales in the latter half of 2025. There has been a lot of recent talk about growing support on the Republican side boosted by the state’s growing budget deficit.
- We assume that adult rec sales begin in earnest in January 2026, so 2026 is a full year for adult use for the state.
- Rules of thumb have generally called for a doubling of sales in a state that goes from medical to recreational, but this is just a guideline and is influenced by a number of factors. After considering the relevant factors, we believe a somewhat lower 1.7x multiple is more likely.
- The state’s tourism profile can have a significant impact. This factor clearly boosts Colorado sales, and it was expected to have a role in doubling Florida sales. Pennsylvania does not enjoy substantial tourism, and this argues for less-than-average increases upon rec approval.
- The development of the Medical market can have several different impacts. If a state lacks sufficient density of dispensaries, start-up in rec use can be slower. Pennsylvania had approximately 186 operational dispensaries as of November 2024, so if these could simply switch to adult use, that would argue for a strong first adult-use year. However, PA has been toying with a state-run retail system for cannabis, similar to its alcohol system. Our view is that the delay and politics surrounding licensing would likely lead to an undershooting of the state’s market potential.
- The state’s overall cannabis use per adult can give us clues as to how much additional sales might occur when the rec switch is thrown. PA has relatively low cannabis spending per adult, at $164, far below other recent rec states in the Midwest, such as Michigan ($423), Missouri ($300), and Illinois ($200). This argues for a more rapid acceleration of sales in Pennsylvania, although several of these states were beneficiaries of the factor below.
- The degree to which surrounding states have adult use programs can also be significant. This factor was heralded as a key impetus for the growth of Illinois, then Missouri, and now Michigan. Pennsylvania is surrounded by predominantly adult rec states: New York, New Jersey, Maryland, Delaware, Ohio, and West Virginia. Only the latter is a medical-only state, and that limits the ability of PA to get cross-border traffic. The flip side of this is that PA is likely to recapture most of the spending its residents are now doing in those neighboring adult rec states. We figure that PA’s low spending per adult pop may well be accounted for by its residents buying weed in surrounding states. But we generally don’t think the pop-up to regular spending will get us to a doubling of sales.
- Still, our projected $2.1B first-year sales gain is nothing to be scoffed about, accounting for about 6.6% of total projected 2024 revenues. And an additional 6.6% growth in industry revenues looks pretty good right now.
