CannabisNewsWire
Editorial Coverage: Surging hemp market growth has created huge
demand for hydroponic supplies.
- Demand for CBD is driving a rise in hemp cultivation, much of
which is done indoors using hydroponic equipment.
- This hydroponic approach allows greater quality control over
the cultivation process and the hemp.
- Acquisitions and expansion are needed for hydroponic companies
to keep up with demand.
Hydroponic supplier Sugarmade Inc. (OTCQB: SGMD)
(SGMD
Profile) has been making swift moves
to deal with this demand, acquiring other supply companies and
outlets. Canadian company Tilray Inc. (NASDAQ:
TLRY) has acquired the world’s largest hemp foods company,
giving it a strong position in a customer-facing part of the
sector. Canopy Growth Corporation (NYSE: CGC) (TSX:
WEED) has set up a new hemp extraction and product
manufacturing facility in New York state. Cronos Group Inc.
(NASDAQ: CRON) (TSX: CRON) has received a large boost in
investment thanks to interest in the surrounding sector, providing
fuel for future growth. Aphria (NYSE: APHA) (TSX:
APHA) is looking beyond North America, with the
acquisition of a European distributor.
To view an infographic of this editorial, click here.
A Better Way to Grow Hemp
With the passing of the Farm Bill in December, the production of
hemp for CBD, which was already on the rise, looks set to soar in
the United States and beyond. Demand for CBD for health and
wellness products keeps rising as more research focuses on its
potential for relaxation, pain management and other benefits for
living a healthy life. Farmers are grabbing the opportunity to
invest in a new cash crop, one which has provided remarkable
returns for some.
But all this attention on hemp and CBD brings challenges with
it. This is a tightly regulated sector with demanding customers.
High-quality crops are essential for success, and managing both
quality and consistency can prove incredibly challenging. To do
this, many growers are turning to hydroponics.
Hydroponics and Hemp
Hydroponic equipment offers an alternative approach from growing
plants in soil. Instead, the hemp harvest is grown in solutions
rich with sustaining minerals, with roots either suspended directly
in the liquid or supported by a medium like gravel that the liquid
can move through. Provided by specialist companies such as
Sugarmade Inc.
(OTCQB: SGMD), hydroponic systems give growers more
control over how their plants grow.
This approach can help hemp growers in a number of ways. The
most obvious benefits revolve around the fact that the plants are
grown in clean, indoor environments. While this results in higher
costs compared with growing in fields, it also results in a number
of benefits. Plants are safe from changes in the weather that can
be harmful to many crops, such as sudden frosts or unseasonal heat.
They’re also protected from contaminants, both living and
inanimate, and from infections that could kill the plants to
chemicals carried in the atmosphere that could taint the eventual
crop.
While any indoor growing situation can help with this,
hydroponics brings greater advantages. By feeding plants with
carefully balanced nutrient baths instead of soil and fertilizer,
farmers gain more control over the crops they produce. This means
higher CBD content, making their plants more valuable. Hydroponics
also means that the hemp often more easily passes the stringent
quality tests that are applied to plants in this sector, tests that
are likely to become even firmer now that the federal government is
officially allowing and regulating hemp production in the United
States.
As a result, companies such
as Sugarmade are on the brink of a potential new gold rush.
With some companies moving into the CBD market and others rushing
to expand their existing hemp production, demand for hydroponic
supplies is on the rise.
Acquiring Influence
This has created a great opportunity for hydroponic suppliers,
and some are moving to further strengthen their position. Those
with an eye to the future, such as Sugarmade, were making
preparations long before the Farm Bill passed into law. Now
they’re reaping the benefits of that forward thinking.
As with hemp production, consistency is key to the supply of
hydroponic equipment. Customers are reliant on these companies not
only for setting up their growing spaces but for expanding them,
maintaining and replacing equipment, and ensuring a steady supply
of the minerals needed to feed the plants. A company that can’t
provide consistent supplies will struggle to maintain relationships
with its customers, whose crops rely on that supply line. With
demand growing, it’s harder to ensure supplies, and for many, the
answer is expansion.
This is the approach that Sugarmade is taking. The company has
made an agreement to
acquire Sky Unlimited LLC, a California-based distributor of
cultivation supplies. This will allow Sugarmade to meet more demand
than it has previously faced, and so cope with the increased needs
of customers.
“This year, Sky Unlimited and its associated operations are
expected to produce in excess of $40 million in revenues with
profitability and positive cash flow,” Jimmy Chan, CEO of
Sugarmade,said in late 2018. “This new revenue stream combined with
our recently upwardly guided revenue forecast of $30 million for
next year will make Sugarmade one of the largest publicly traded
suppliers to the booming cannabis cultivation marketplace, with a
combined revenue forecast for next year in excess of $70
million.”
There’s also an opportunity for expansion, given the huge market
growth. Sugarmade has leapt upon this chance through its possible
acquisition of a
retail location from Washington State-based company Hydro4Less
and options to purchase two more. The first location alone is
expected to provide $5 million in revenue, as Sugarmade increases
its foothold in the hydroponic market.
Hydroponics Beyond North America
While the current focus for hemp and CBD, as well as the
associated part of the hydroponics market, is currently on the
North America, there is also important potential for growth further
afield. European countries are showing an increasing interest in
CBD products, with customers keen to buy in, and some governments
re-examining the legislation around these crops. For fast-moving
companies, there’s a chance to get in on the ground floor of the
next wave of hemp hydroponics.
Sugarmade is ahead of the game in this area. Last summer, the
company made its first
sales into Europe, establishing a place in the continent’s
supply chain. European customers have been taking an increasing
interest in the quality products and attractive prices provided by
American hydroponic companies, and Sugarmade is making the most of
it.
“The lack of available products within the European markets
provides Sugarmade additional revenue growth opportunities,” Chan
said. “We view this as a potential growth market for Sugarmade
especially considering there are more than 740 million people in
Europe compared to only about 360 million in the U.S. We believe
even a few points of market share of this huge market will have a
very positive effect on our growth rate.”
Companies Race for Hemp Dominance
Like Sugarmade, Canadian company Tilray Inc. (NASDAQ:
TLRY) has been using acquisitions to strengthen its place
in the hemp and adjacent markets. One of the most significant is
the recent
acquisition of Manitoba Harvest, the world’s largest hemp foods
company. Food and drink are increasingly important parts of the
hemp market, as customers look for hemp-based whole foods and tasty
ways to consume CBD. With a range of products including oils,
granola, and protein powder that are sold in more than 16,000 major
retailers, Manitoba Harvest gives Tilray a powerful place in this
sector.
Canopy Growth Corporation (NYSE: CGC) (TSX:
WEED) is one of the largest companies working in hemp,
thanks to its steady growth paired with billions of dollars in
outside investment. The company is in the process of expanding from
Canada into the United States, with the establishment of a hemp production
facility in New York state. Growth into the States will allow
Canopy Growth to benefit from this year’s CBD surge. The company is
also working to raise the public profile and usefulness of CBD
through research with
the National Hockey League Alumni Association on using CBD to treat
concussions.
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON),
one of the big companies making use of hydroponic equipment, has
benefited hugely from outside interest in the market. Less than a
month ago, it closed a C$2.4 billion investment from Altria, the
American company behind brands such as Marlboro and Benson &
Hedges. It’s a sign of the big money currently swirling around this
part of the economy, a large part of which is invested in crops and
the equipment to grow them.
Some of this big money was recently directed into an attempted
hostile takeover of Aphria (NYSE: APHA) (TSX:
APHA) by Green Growth Brands. It was a move that showed
the high value placed on companies such as Aphria, even as the
company’s board shot down the bid. Like Sugarmade, Aphria has been
making moves beyond North America and into Europe, with the
acquisition of a
German distributor.
The hemp and CBD market keeps growing, more money keeps flooding
in, and a large part of it will inevitably be funneled into
hydroponics to create plants that meet the standards demanded by
customers and regulators. For both CBD companies and hydroponic
suppliers, that’s great news.
For more information on Sugarmade, visit Sugarmade, Inc.
(OTCQB: SGMD)
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