Multi-state operators and sports betting firms have the same problem. Governments are slow to legalize cannabis and gambling respectively. Between the two, which is a better buy?
Investors waited for over a year for MSO legalization at the federal level in the U.S. The governments continue to delay the decision. This limits the growth potential of MSOs. Investors may buy the Cannabis ETF in small allocations first. It is impossible to predict when the government will legalize the product.
In the sports betting market, DraftKings (DKNG) is the best pick, relatively speaking. Yet in its quarterly earnings report, the company posted weak guidance. EBITDA guidance is weak, overshadowing the company’s strong Q4 revenue results. In 2022, it will lose $300M to $400M in EBITDA. The firm has high customer acquisition costs. This is unsustainable.
Costs will rise as DraftKings rushes to enter new markets, facing more competition along the way. Costs will grow faster than revenue. Customers may take advantage of any promotions, then shop around for better rates.
Between the two sectors, MSOs are a better buy. Without Federal legalization, many MSOs are still profitable. They are not overspending or over-expanding through store openings. Their acquisitions are conservative. This will pay off for investors in the end.
