HEXO - Could Rapidly Growing INLB Be The Next Big Cannabis Breakout?

• Increasingly, law-makers are putting forth new ways to simplify the U.S. marijuana industry and let this sector blossom: improved banking access and relegating control to the states are top examples wending their way through legislation.
• Already medical marijuana use is approaching $8 billion in annual sales according to one research source, and another estimates that recreational legalization could usher in a $25 billion market within 5 years.
• The U.S. private industry is still fragmented, and sorting out up-and-coming companies with compelling value propositions isn't always easy. One company gaining traction in the SW is Item 9 Labs Corp. (INLB), which grew their sales in Q4 2018 by 350% compared to the same period one year ago, to over $1 million. That report came just before a 2X capacity expansion at their primary cultivation/production facility, and a second facility that again doubles their total capacity should be completed by the end of 2019. A strong management team combined with this 4X capacity expansion in just one year may make for a quality setup for this emerging company.

NEW YORK, NY / ACCESSWIRE / May 14, 2019 / Thirty eight state attorneys general are ready to bring the booming marijuana industry mainstream, and they want big banks and regulators on board.

More than 30 states and U.S. territories have at least legalized the medicinal use of marijuana, but because the federal government classifies cannabis as an illegal substance, no banks can provide services to state licensed marijuana businesses without possibly being subject to criminal liability. Under existing law, federal regulators are forcing legal marijuana businesses to operate as cash-only operations, creating obvious targets for theft, crime and possibly tax avoidance schemes. It's harder for these businesses to DO business, and it's more difficult for states to accurately collect taxes.

In astatement early in May, attorneys general from 38 states are advocating for federal lawmakers to pass the SAFE Banking Act, which would let marijuana businesses access the federal banking system without fear of repercussion. This comes on the back of another proposed approach to simplify the marijuana industruy: the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which would essentially let state law govern federal regulation.

Both would be big steps for the U.S. marijuana market today, which is expected to grow to $25B as more states - and possibly federal regulators - legalize the substance. The U.S. industry is fragmented, but some small companies are still making major headway in this large addressable market, and it's worth knowing about one small player in particular.

The $8B+ Us Marijuana Market

It's no wonder that states want marijuana proceeds out of the darkness and into the light. Medical marijuana is on track for $8 billion in annualsales by 2024, and the entire U.S. legal system including current and future recreational use could surpass $25billion by 2025. Operating in the shadows as non-banking entities makes accounting and tax collection difficult.

Banks aren't the only system keeping marijuana companies at arm length. National U.S. stock exchanges like the NYSE were slow to accept U.S.-based marijuana companies that might be breaking federal law, so big board listings so far have been the companies operating within federal law, and many based in Canada, like HEXO Corp. (HEXO.TO)(HEXO) or OrganiGram Holdings Inc. (OGI.V)(OGRMF).

Meanwhile, some U.S. cultivators and marijuana producers, despite their small and fragmented stature, are making headway in select state-specific markets around the U.S. where marijuana has been embraced wholeheartedly.

Item 9 Growing Revenue With A Strong New CEOAnd The Right Industry Connections

One company that's getting press coverage for a number of rapidly growing business initiatives and a well-known CEO is Item 9 Labs Corp (INLB), based in Arizona as a high-end producer of medical marijuana products. The company's new CEO is a high-profile marijuana hitter nationally. Before coming on board in 2019, Sara Gullickson was Founder and CEO of Dispensary Permits, a nationally recognized cannabis consulting firm. As a leading consultant for the industry, Gullickson was named one of Herb Magazine's Top Ten Cannabis Entrepreneurs and Phoenix Business Journal's Top Forty Under 40 in 2018, and she was recently selected by Marijuana Business Magazine for its Women to Watch in 2019 list. Her experience in this industry runs about as a deep as it can considering just how young the sector is.

Item 9 has reported quickly growing operating metrics in the last year, with reported revenue in the fourth quarter of 2018 of $1,017,097, representing about 350% growth over the same quarter a year before! It looks like that may be the beginning: the company is about to finish doubling their existing cultivation and production facility, from 10,000 sq. ft. in Arizona to 20,000 sq. ft. They also recently broke ground on a second 20,000 sq. ft. facility in Nevada that will DOUBLE again their total output potential as they penetrate this new state. By the end of the year, the company hopes to have all of these facilities online, for a 4X total increase in their production capacity compared to 2018, which may say a lot about their revenue potential.

As such, they've set a goal to be in 6-10 markets nationally by the end of 2019, which may be realistic with Gullickson at the helm. They already received a processor provisional license to pursuea proposed facility in Ohio covering 7,000 square-feet on a property parcel compliant with zoning requirements.

Her team at Dispensary Permits has helped countless license-seekers secure appropriate state and regional permits to operate…she's both well-connected with marijuana entrepreneurs and well-versed in the legal mire that constitutes the fractured U.S. system today.

The U.S. marijuana ecosystem will undoubtedly become less fragmented over time with clear regional and national leaders emerging, and M&A rolling smaller companies into larger. Based on Item 9's recent revenue growth, their leading position in the SW, and their ambitious growth plans, it could be a company to know as this industry matures.

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