Editorial Coverage: The rapid growth of the cannabis sector is
pushing companies to innovate expansion strategies.
- Among the companies affected are hydroponics suppliers, which
sell vital equipment to cultivators.
- Hydroponics companies, like others in cannabis, are using
mergers and acquisitions to benefit from a bullish market.
- A recent trade show in Las Vegas saw companies on the hunt for
- Other companies are seeking outside investment or partnerships
to increase their presence.
Hydroponics supplier Sugarmade, Inc. (OTCQB: SGMD)
Profile) has leaned into the current trend for
mergers, with a big acquisition and open plans for future growth.
Tilray, Inc. (NASDAQ: TLRY) is focusing on
research and design, using public offerings to finance this work.
Canopy Growth Corp. (NYSE: CGC) (TSX: WEED) has
gained $4 billion in investment from a beverage company, an
investment some believe will lead to a takeover. Both
Cronos Group, Inc. (NASDAQ: CRON) (TSX: CRON) and
Aphria (NYSE: APHA) (TSX: APHA) are relying on
diverse strategies, including external partnerships, as they look
to grow and succeed in the cannabis sector.
To view an infographic of this editorial, click here.
The Industry Behind the Industry
The cannabis industry is experiencing a period of staggering
growth, with commentators predicting that it will reach a global
value of over $146 billion by
the end of 2025. With so much of the industry based on indoor
cultivation, hydroponics companies that provide the equipment and
nutrients needed to cultivate cannabis have also seen significant
growth. As cannabis cultivation increases, so does demand for
hydroponics products, so that the fates of the two industries are
increasingly tied together.
Given their close relationship, it’s not surprising to see
patterns in the broader cannabis sector reflected in the
hydroponics industry. A recent surge of
mergers and acquisitions among cannabis companies includes a
number of moves involving hydroponics companies as players within
the industry seek growth while outsiders look for a way in. With a
big cannabis trade show coming up in Las Vegas, executives from
hydroponics companies will be eyeing up the competition and
contemplating who they might buy next.
Mergers, Acquisitions and Hydroponics
Hydroponics companies such as Sugarmade, Inc.
(OTCQB: SGMD) are essential to the cannabis
While cannabis can be grown outdoors, almost everything about
the current industry drives producers away from this method. Indoor
facilities are more secure, an important factor when producing a
high-value, high-demand crop prized by criminals. Indoor
cultivation also provides far greater control over the conditions
in which the cannabis grows, as well as over the quality of the
plants grown. Lighting, water, nutrients and temperature all affect
the final outcome of the plants, including the quantity of active
ingredients in them. High-quality hydroponic equipment, like that
supplied by Sugarmade, gives growers control over the forces
affecting their cannabis crop.
This control is becoming increasingly important as the cannabis
market grows. Customers may be more forgiving of varying quality
when companies are small or their product is hard to obtain. But as
companies grow and supplies become more consistent, people expect
consistency and quality — things that are harder to provide without
The growing number of companies in the sector also means that
competition for customers is growing. Companies are racing to
create crops with higher dosages of tetrahydrocannabinol (THC) and
cannabidiol (CBD), the most significant active ingredients in
cannabis. The more powerful the plant, the more customers will
return, creating a strong brand loyalty. Again, hydroponics can be
an essential piece of this success.
Demand for hydroponics has led to swift growth for Sugarmade,
which expects 500 percent growth
in revenue for the fiscal year ending in 2019. One of the ways
in which Sugarmade is meeting growing demand and achieving these
impressive results is through acquisitions.
Mergers and acquisitions are an obvious route to growth for
companies in a maturing sector, and in the past year, that’s what
many cannabis companies have chosen to do. The first half of 2018
saw 145 mergers and
acquisitions in the sector, compared with 79 for the same
period the previous year. Some of the pioneers who created cannabis
startups in the early days of the industry are cashing out, making
way for a field of larger, established companies.
Now caught up in the wider patterns of the cannabis market,
hydroponics is heading down the same path. With its latest acquisition of Sky Unlimited LLC, Sugarmade has
been one of the leaders in this trend. The cash and shares deal,
worth $40 million, will give Sugarmade control of AthenaUnited.com,
an online outlet providing a range of hydroponic equipment.
"This acquisition will further boost our already very rapid
growth rate and is expected to be high accretive to common
shareholder value," said Sugarmade CEO Jimmy Chan. "Sky Unlimited
and Athena are complementary to our existing business operations,
allowing us to not only increase our emphasis on brands but also to
diversify our revenue streams to now include the larger commercial
Cannabis Goes to Vegas
Sugarmade was on the hunt for more acquisitions as its team
headed to Las Vegas for MJBizCon.
One of the cannabis industry’s largest trade shows, MJBizCon
took place November 14–16 at the Las Vegas Convention Center.
Investors, entrepreneurs and professionals from across the sector
headed to Vegas for three days of talks, meetings and the sort of
networking that dominates any trade show.
This year’s show had a record number of attendees and
exhibitors, reflecting the huge growth that the industry has seen.
Some 25,000 attendees met up and discussed topics such as the
latest industry trends and how to navigate the difficult waters of
One prominent item on the agenda was the move by bigger players
into the cannabis market. Beverage and tobacco companies are eyeing
cannabis as an alternative revenue stream, with some striking early
partnerships with cannabis businesses. To survive in the face of
these big money competitors, businesses will have to grow — one of
the motivations behind Sugarmade’s acquisition strategy. There’s
still space for small fish in the cannabis pond right now, but that
space is shrinking.
MJBizCon provides fertile territory to lay the groundwork for
acquisitions. There, companies can make contacts, seek investments
and demonstrate their value. It’s a perfect venue to attract
acquisition targets and start negotiations.
So it was a full-press court for Sugarmade at the event, as the
company set out to continue its successful growth strategy. Though
this year’s moves have already given it a competitive edge,
Sugarmade is always looking to strengthen its foothold and further
establish its position as an industry presence.
"Over the past year, we have significantly enhanced our
operational staff and our internal systems preparing for our rapid
growth,” Chan said in a recent statement. “With these changes, we
believe we are optimally sized, but we want to ensure we are able
to manage our aggressively planned growth rate.”
Big Moves for Big Profits
Other companies are also making bold moves to profit from the
growth of the cannabis sector.
While expansion is critical to surviving in this fast-changing
environment, mergers and acquisitions aren’t the only answer.
Tilray, Inc. (NASDAQ: TLRY) is instead focusing on
its well-developed research and design program to place it ahead of
competitors. A leading medical marijuana company, Tilray has
established a prominent position in the North American healthcare
market. But it’s also looking beyond the United States and Canada
as the cannabis industry goes increasingly global. With customers
on five continents, Tilray has become an international cannabis
business, and one still set on expansion. The company is using its
public offerings in the United States and
Canada to gain additional finance that will fund ongoing
Canopy Growth Corp. (NYSE: CGC) (TSX: WEED),
one of the biggest cannabis companies in Canada, is financing its
expansion through a connection outside the industry. The company
struck a deal with Constellation Brands, the major U.S. beverage
company behind brands such as Corona. The deal has seen
Constellation acquire more than a third of the shares in Canopy
Growth in return for $4 billion in investment. It’s the biggest
move so far by outside businesses into the cannabis sector and
likely an omen of things to come. Many are predicting that this
will lead to Canopy Growth’s eventual absorption under the
Constellation umbrella, once cannabis becomes a big enough market
to deserve more of the beverage giant’s attention.
Growth in the industry has been good for Cronos Group,
Inc. (NASDAQ: CRON) (TSX: CRON), whose revenues were up
186 percent in its third-quarter
reporting this year. Increased cultivation, a partnership with
Ginkgo Bioworks on cultured cannabinoids and a move into Latin
America are all part of the company’s announced plans to continue
its expansion. By following a diverse range of growth tactics,
Cronos is solidifying its position as a significant international
Collaboration with other companies is also part of the strategy
for Aphria (NYSE: APHA) (TSX: APHA). The company
has formed a joint venture with Perennial, Inc., to develop products for the Canadian cannabis market,
currently one of the most significant cannabis markets in the
world. Such collaborations are allowing companies to achieve more
together than they could alone and perhaps survive in the face of
With the cannabis industry growing at a dramatic rate, both
cultivators and the companies that supply them will have to find
ways to increase their impact if they want to beat the
For more information on Sugarmade, visit Sugarmade, Inc.
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