CannabisNewsWire
Editorial Coverage: As the cannabis industry continues to grow,
companies are using a variety of strategies to secure their places
within the sector.
- The cannabis sector, currently worth over $9 billion in North
America, is expected to hit $57 billion globally by 2027.
- This growth is being fueled by changes in the legal climate and
a range of business strategies.
- These strategies range from R&D focus to M&A,
vertically integrating supply channels in the process.
Youngevity International, Inc. (NASDAQ: YGYI) (YGYI
Profile), a relative newcomer to the sector, is
bringing its vertically integrated strategy from the coffee market
to cannabis. GW Pharmaceuticals Plc (NASDAQ: GWPH)
is focused on the medical market, developing prescription medicines
among other products. Charlotte’s Web Holdings, Inc.
(OTCQX: CWBHF) (CSE: CWEB) is focused on reaching more
retail outlets, pushing its CBD products out through a growing
number of channels. CV Sciences, Inc. (OTCQB:
CVSI) is primarily research oriented but is also raising
its profile through sponsorship of a hemp industry conference. In
Canada, Aurora Cannabis, Inc. (NYSE: ACB) (TSX:
ACB) is making use of recent changes by establishing a
range of new supply agreements.
To view an infographic of this editorial, click here.
A Changing Business
This year has seen huge developments for the cannabis industry
in North America. In Canada, recreational cannabis became legal in
the middle of October, after a year of political debate and
commercial preparation. South of the border, pressure mounted for
reform of federal laws to support states making their own choices,
with 64 percent of
Americans now saying that they favor legalization. While
political maneuvering ahead of the midterm elections delayed
efforts to legalize industrial hemp through the 2018 Farm Bill,
voters supported the legalization of medical cannabis in Missouri
and Utah and of recreational cannabis in Michigan. With cannabis
now legal for medical use in 33 states and for recreational use in
10, prohibition is clearly on its last legs.
This wave of change is leading to staggering growth in the
cannabis industry. Companies are seeing dramatic rises in revenue
as new markets open up, new products are created and new customers
cast off tradition to give cannabis a go. This is creating a new
space for cannabis companies to work in, where new strategies are
being tested alongside new products.
Cannabis Market Keeps Growing
For companies such as Youngevity
International, Inc. (NASDAQ: YGYI) that have a
significant investment in cannabis, the past few years have been
promising ones. The cannabis market has steadily grown as popular
sentiment-driven legalization has opened the way for companies to
thrive, which in turn has strengthened their campaigns for further
legalization. The success of first medical and then recreational
legalization in many states and Canada has reassured others that
this is a safe path to follow, creating a North American industry
that was worth over $9 billion in
2017, according to a Forbes report. That value is forecast to
keep rising, with a predicted value of $47.3 billion by 2027.
With notable exceptions such as Uruguay and Israel, the rest of
the world has been slower to follow, but that too is changing.
Germany permitted the sale of medical cannabis through pharmacies
in 2017. Even Britain, one of Europe’s most conservative countries,
opened the door to doctors prescribing cannabis products this year
after a high-profile campaign by the mother of an epileptic child.
Taken all together, the global market is expected to be worth $57 billion by 2027, according to the Forbes
report.
A significant part of that industry is made up of cannabidiol
(CBD) products. Derived from both marijuana and industrial hemp,
CBD is used in health and wellness products such as Youngevity’s Hemp FX™ range. Though some
industry predictions may be unreasonably optimistic, performance
indicates that CBD products are
increasingly popular and are expected to give a significant
boost to cannabis businesses. With Congress expected to legalize
widespread hemp cultivation as part of the current Farm Bill, the
supply of CBD has the potential to soar.
Developing New Strategies
In the early days of the cannabis industry, corporate strategy
was simple. Produce the best cannabis possible, market it within
the limited options regulations allowed, and soak up the demand
from customers. Now the industry is a more diverse one, from
focused pharmaceutical brands to the likes of Youngevity, which
combines an interest in CBD with other lifestyle products.
Strategies have evolved to match the changing market.
One common path has been that of mergers and acquisitions. In a
market full of small businesses, there’s plenty of potential for
the big movers to swallow up competitors. This has really taken off
in 2018, a year that saw 145 mergers and
acquisitions during its first six months, compared with 79
M&As in the first half of 2017.
Investment by and in cannabis companies has also increased. From
Sugarmade’s investment of a million dollars in
Hempistry to Constellation
Brand’s decision to pump billions into Canopy Growth, companies
are investing in each other to profit from different parts of the
market or to easily enter it for the first time.
For others, product diversification is a common way forward. As
the market grows, so does the ingenuity of the companies involved.
R&D departments are producing an increasingly wide range of
products, whether strains of cannabis or derivatives using CBD.
Youngevity has recently added sleep and
hydration products to its existing range, as the company finds
more uses for CBD and more corners of the market to expand into.
The spread of legalization is making it easier for companies to
carry out this R&D work, leading to ongoing acceleration in the
number of products coming out.
Vertical Integration
While some companies are focusing on horizontal integration,
absorbing potential competitors in the same part of the cannabis
business, others are looking at vertical integration.
This is the approach taken by Youngevity, with a strategy it
refers to as “field to finish.” This is an
adaptation of the “field-to-cup” strategy the company takes with
coffee, seeking to control the whole supply chain, from the
cultivation of beans through to the moment the coffee is delivered
to the customer. Except that this product is cannabis instead of
coffee.
The field-to-finish strategy offers many advantages for a
company that can achieve it. By controlling cultivation, processing
and distribution, it can ensure high-quality standards, an
important part of Youngevity’s lifestyle brand. It can also benefit
from the efficiencies and improved communication that come with an
integrated supply chain. Many of the blockages that introduce
inefficiencies are more easily removed in a system such as this,
leading to a leaner, more cost-effective operation.
Youngevity has only recently entered the CBD market, but the
company has grand plans. “We firmly believe in plant-based
nutrition, and hemp (CBD) oil perfectly complements our product
development philosophy,” said Steve Wallach, the company’s CEO.
“Entering this market, which is growing almost exponentially, also
should offer a tremendous advantage to our many distributors around
the world.”
As Wallach has repeatedly made clear, the products so far
released are only the beginning for Youngevity.
Players Big and Small
With the market going through dramatic changes, both large and
small companies are making significant moves to expand their slice
of the pie.
GW Pharmaceuticals Plc (NASDAQ: GWPH) has built
a strategy strongly oriented towards the medical market. This
includes not just selling strains of cannabis but creating other
medicines based on it. The company has created the first plant-derived cannabinoid medicine to gain U.S Food
and Drug Administration approval, getting GW’s products into
the prescription drug market across the United States. By creating
new and valuable medicines, it is creating a place as a prestigious
innovator with customers’ wellbeing at its heart.
Charlotte’s Web Holdings, Inc. (OTCQX: CWBHF) (CSE:
CWEB) is catering to the broader health and wellness
market with its CBD-based products. As mainstream acceptance of CBD
grows, the company is expanding into a wider range of stores and
has now reached 3,000
outlets.
Like GW, CV Sciences, Inc. (OTCQB: CVSI) has
built its business around research, using its expertise to create
new products and to sell its services to consumers. CV Sciences was
the first hemp CBD nutraceutical company whose products were
certified Generally Recognized
as Safe (GRAS) by the FDA, helping improve the image of both
the products and the cannabis market. The company is further
raising its profile within the industry as a sponsor of HIACON 2018, the Hemp Industries
Association’s 25th anniversary convention.
For Canadian companies such as Aurora Cannabis, Inc.
(NYSE: ACB) (TSX: ACB), recreational legalization has
opened up a whole new market that presents new opportunities and
new challenges. With the market regulated province by province,
companies have to set up supply agreements to cover different
regions. Aurora has been busily setting up these
agreements, giving it a wide distribution network over an
important new market.
The expansion of the cannabis market has led to a range of
strategies, from acquisitions and product development to opening up
new distribution channels, leading to growth for a diversity of
different companies. The next few years will show which strategies
work best.
For more information on Youngevity, visit Youngevity
International, Inc. (NASDAQ: YGYI)
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