CannabisNewsWire
Editorial Coverage: With Canada’s decision to decriminalize
cannabis nationwide and the 2018 U.S. Farm Bill’s provision to
potentially make industrial hemp and hemp-derived cannabidiol (CBD)
legal nationwide, the cannabis CBD product sector is gaining a
strong foundation.
- Analysts expect runaway growth in the cannabis and CBD
markets.
- Industry is scaling up amid regulatory reform.
- Underlying growth metrics are bullish for hydroponics suppliers
and cultivators alike.
- Branding and marketing are increasingly important and tied to
quality control.
Numerous interests stand to benefit as the cannabis sector
begins to hit its stride, ranging from cannabinoid biopharma
developers to cultivators with rapidly expanding acreage
footprints. Pick-and-shovel plays such as hydroponics supplier
Sugarmade, Inc. (OTCQB: SGMD) (SGMD
Profile) could be some of the biggest winners, quietly
supplying tons of hardware to a variety of end users without having
to jump through the all the legal hoops. Tilray, Inc.
(NASDAQ: TLRY), one of the first companies licensed to
produce medical cannabis as dried flower in Canada, has quickly
become known for its full-spectrum cold-extracted cannabinoids with
clearly indicated tetrahydrocannabinol (THC) and CBD potencies.
Canopy Growth Corporation (NYSE: CGC) (TSX: WEED)
has parlayed its leadership in cannabis and hemp with dried, oil
and softgel capsule products into a landmark $4 billion investment
from beer, wine and spirits major Constellation Brands, Inc.
Cronos Group, Inc. (NASDAQ: CRON) (TSX: CRON),
which operates two wholly owned Canada-licensed producers, is
making its presence felt across five continents. And Aphria
Inc. (NYSE: APHA) (TSX: APHA) is also making serious waves
as a globally minded cannabis producer, having just recently been
approved for uplisting to the New York Stock Exchange.
To view an infographic of this editorial, click here.
Historic Market Forces Create a Perfect
Storm
After more than eight decades of prohibition, cannabis has gone
from a black market to a tax revenue-generating multibillion-dollar
industry in a handful of years. It is an industry nipping at the
market share heels of sectors like alcoholic beverages, food and
drink, supplements and now even biopharmaceuticals. The market for
just one of over 100 different cannabinoids, the non-psychoactive
CBD, was recently projected to break $22 billion by
2022. CBD alone could have “profound impacts” across the
consumer packaged goods (CPG) and pharma industries according to
Brightfield Group, potentially outpacing the broader cannabis
market combined. It would be a major boon to the U.S. market if
industrial hemp and CBD become legal under the latest Farm
Bill.
Recent analysis in a report from Amadee & Company cites
baseline market metrics such as over 37 million people in the
United States using cannabis (both legally and illicitly) as
contributing to a North American market worth over $41 billion this
year, which is on track to hit $95
billion by 2026. The more conservative figures from Arcview
Market Research and its research partner BDS Analytics are the $9.2
billion in sales seen in 2017, and a projection of $47.3 billion within 10 years. Either way, investors
are looking at some low-hanging CAGR fruit, and the sector as a
whole has scaled up enough that it is now seemingly much easier to
pick winners that can thrive, regardless of potential governmental
policy drift.
Many End Markets - One Stop Shop for Hydro
Hardware
Sugarmade, Inc.
(OTCQB: SGMD), headquartered in northeastern Los
Angeles County on the edge of the Angeles National Forest, has
already established a formidable presence in the hydroponics supply
market with brands such as ZenHydro.com,
CarryOutSupplies.com and BudLife. The company
also recently launched a massive new $1 million initiative to
cement a foundational position in the emerging U.S. industrial hemp
and CBD market through an investment in privately held Hempistry,
Inc., a Kentucky-based farmer (23,000 acres) of an ultra-rich CBD
strain of hemp.
Hydroponics has rapidly emerged as the dominant strain in the
cannabis cultivation industry when it comes to medical cannabis, or
products that want to emphasize stringent environmental cultivation
controls and overall consistency. The KD Market
Insights report projects a six-year CAGR of 20.7 percent, as a
$5.22 billion 2017 hydroponics market grows to $13.84 billion in
2023. According to another report,
cannabis cultivation will be a major driver of sector growth, with
just the U.S. hydroponics market set to clock in at 20.3 percent
CAGR from 2018 to 2025, hitting around $3.7 billion.
These are significant advantages for SGMD as the company pursues
its binding definitive agreement to acquire Nevada-based Sky
Unlimited, LLC, which has developed a solid reputation throughout
the full spectrum of cultivation markets. Its robust AthenaUnited.com website lists everything from
advanced lighting systems such as Hortilux lamps and ballasts to
complete hydroponics kits such as the AeroFlo 60 aeroponic system
from General Hydroponics, which super-oxygenates the nutrient
solution. The AeroFlo line is a great example of a brand that
growers, academics and researchers alike have praised for
delivering consistently hearty growth rates and yields. Consumers
from various cultivation industries have come to trust that they
can find the best environmental control systems and cutting-edge
nutrients, as well as plant care and more general gardening
supplies on the site.
Ready to Launch
Sugarmade will retain all employees and completely assume all
operations and liabilities via the acquisition. The company
anticipates that the Sky Unlimited deal will be highly accretive
for shareholders and has further increased the previous 500 percent
annual revenue growth projection made back in July, of $30 million
during 2019, to a whopping $70 million. This handsome increase owes
a lot to how easily integrated the parallel business lines of Sky
Unlimited and Athena are to SGMD’s existing model, as well as the
extent to which the deal will allow Sugarmade to not only access
the larger commercial cultivation market more directly but also
enhance its emphasis on brands in a market where brand loyalty
still means a great deal.
Scheduled for January 2019, the deal is subject to an extensive
audit of the Sky Unlimited operations, but confidence is high that
this latest acquisitive foray by Sugarmade will spell share price
appreciation gold for the company’s shareholders. In fact, things
are apparently looking so good overall for the company that
management has begun positioning for a potential NASDAQ uplisting,
tapping the requisite legal team to expedite the process.
Symbiosis amid Competition
The broader market is set up nicely for SGMD to take advantage
of, but the reality is more symbiotic than predatory.
Tilray, Inc. (NASDAQ: TLRY) was the first
company to legally export medical cannabis from North America to
Europe, Australia and New Zealand. One of the top names in both
cultivation and research, Tilray is on deck to report Q3 financials
this Nov. 13 after a strong quarter in which the company
successfully closed a $450 million private placement funding run
with qualified institutional buyers. The company is one of the
pioneers in clear labeling of THC and CBD concentrations and has a
public-facing dedication to compliant and effective products that
lead the industry by example.
Canopy Growth Corporation (NYSE: CGC) (TSX:
WEED) prides itself on the highest quality cannabis,
whether it is ultimately distributed as dried flower, oils and
concentrates, or precisely formulated softgels. The company has a
strong hand in industrial hemp for producing CBD, and now that
alcoholic drinks giant Constellation Brands (which has over 100
brands to its name) recently closed its $4 billion investment in
the company, Canopy is poised to strike hard and fast across the
more than 30 countries worldwide that are in the process of
advancing some form of permissible cannabis regulation for adult
use or medicinal purposes.
Cronos Group, Inc. (NASDAQ: CRON) (TSX: CRON)
is increasingly a global player, with operations in Canada,
Colombia, Germany, Poland, Israel and Australia. The company
launched its second recreational cannabis brand this year and has
two wholly owned Canada-licensed producers to its name, as well as
a 21.5 percent stake in British Columbia-based Whistler Medical
Marijuana Company, which is licensed to produce and sell medical
marijuana and cannabis oil.
When Aphria Inc. (NYSE: APHA) (TSX: APHA)
uplisted from the OTCQB to the NYSE, it was not just big news for
the company but for the cannabis industry and smallcap markets as a
whole. Aphria has seen an impressive rise from a relatively small
player to a true global leader in cannabis. The company’s rigorous
study of the end-user market and ingenious development of a variety
of brands to suit every buyer segment has delivered bottom-line
results across the company’s entire line of capsules, oral
solutions, oil syringes and single-unit vaporizer cartridges.
Once-in-a-lifetime Early-adopter
Opportunity
As attitudes and regulations open up the global market for the
end products being developed in the cannabis market, from
commercial drinks containing CBD to lab-grown cannabinoid biopharma
indications, some of these smaller companies are starting to look
to many analysts like potential all-stars. Differentiating factors
such as brand presence, product execution and market
access/penetration are important analytical vectors. However, key
capabilities such as being a picks-and-shovels supplier are of
particular note, whether one is talking about hydroponics hardware
for production or producing the raw cannabis that other companies
rely on.
For more information on Sugarmade, visit Sugarmade, Inc.
(OTCQB: SGMD)
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