CannabisNewsWire
Editorial Coverage: Growth in the Californian cannabis
industry, currently restricted by licensing delays, is expected to
accelerate over the coming months, bringing profits for suppliers
of cultivation equipment.
- California is one of the largest recreational cannabis markets
in the world.
- Recent delays in issuing cannabis licenses in California seem
to be approaching an end.
- Outside California, the growing global reach of the cannabis
industry is drawing interest from significant international
investors.
Sugarmade, Inc. (OTC: SGMD) (SGMD
Profile) is one of the companies set to profit from
this acceleration, thanks to its sales of hydroponic equipment to
cannabis cultivators. Tilray, Inc. (NASDAQ: TLRY)
is looking forward to a presence in Latin America after recently
establishing a subsidiary in Chile. Canopy Growth Corp.
(NYSE: CGC) (TSX: WEED) has drawn billions of dollars in
investment from a beverage giant, while Cronos Group, Inc.
(NASDAQ: CRON) (TSX: CRON) has benefited from a similar
move from big tobacco as those industries’ big names look to get
involved in cannabis. Meanwhile, Aphria (NYSE: APHA) (TSX:
APHA) is expanding its reach beyond North America through
an acquisition in Germany.
To view an infographic of this editorial, click here.
California’s Pot Power
When California passed the Adult Use of Marijuana Act in
November 2016, the legislation sent waves through the American
cannabis industry. The legalization of recreational cannabis in the
most populous U.S. state offered the potential for a huge and
lucrative market. The first U.S. state to legalize medical
cannabis, California had been near the forefront of the cannabis
industry for more than 20 years.
With an estimated population of nearly 40 million people and an
electorate that had voted by a 57 percent majority in favor of
legalization, California clearly has huge potential for the
industry. Not only cannabis growers and retailers but also the
companies supporting and supplying them are set to benefit from the
change. Recreational cannabis sales became legal in January 2018,
and businesses have moved to make the most of the new market.
Licensing has caused delays for many companies, but if authorities
can tackle the backlog, there’s potential for an enormously
influential industry to spring up.
Cultivation Operations
The cannabis industry doesn’t operate in isolation. Companies
such as Sugarmade, Inc. (OTC: SGMD), which
has become established in other industries, are now moving into
this field.
Sugarmade is a product and brand marketing company that invests
in products and brands with disruptive potential. Building upon
experience in food, restaurant supplies and packaging, it has
recently made two big moves in the cannabis sector. These are
natural moves for companies aiming to expand their customer base in
consumable products, applying existing skills and experience to a
relatively new market, and the approach appears to be working well
for the company.
Sugarmade’s most recent move in hemp is the investment of $1
million in Hempistry Inc., a Nevada corporation catering to the
growing demand for the pharmacologically active CBD component of
hemp. The investment is a bold move that comes just as hemp
cultivation is on the verge of federal legalization.
Hydroponic equipment is vital to the cannabis industry. It
allows producers to cultivate plants in secure, tightly controlled
indoor facilities where they can ensure the product is healthy and
its potency is appropriate to their market. Without the hydroponics
industry, there is no cannabis industry; thus, the rise of cannabis
has been hydroponics’ gain.
As a large hydroponics company whose reach includes its ZenHydro
brand, Sugarmade could become a leading supplier to California’s
cannabis industry. As companies expand to serve the growing market
and new companies emerge alongside them, they will depend on
cultivation supplies, and Sugarmade is forecasting accelerating
revenue growth as a result.
Licensing Issues
Currently, the biggest obstacle to this growth is the ability of
California authorities to license cannabis cultivation
applicants.
As with any drug requiring a doctor’s prescription, cannabis
should be properly regulated. California’s laws include provisions
for this, requiring commercial growers to apply for cultivation
licenses to operate within the state. However, because federal law
still prohibits the cannabis industry, it is difficult for cannabis
companies to operate across state lines. Therefore, those aiming to
sell cannabis in California will need to grow the crop within the
geographic bounds of the market.
Companies applying to grow cannabis in California have
encountered a fluid response over the past few months. Recreational
legalization encouraged a rush of license applications as approved
medical cannabis companies sought the ability to supply the new
market and entrepreneurs sought to seize their own piece of the
pie. This inevitably put a strain on the system, as happens after
any big change. Applications started piling up. According to state
licensing agency CalCannabis, an
estimated 2,547 cultivation licenses were under review by the
beginning of November, with little sign that the backlog was
moving.
This slow movement has delayed expansion for the whole industry,
including hydroponics suppliers such as Sugarmade. Without a
license, the equipment to grow cannabis is of no use to a dedicated
cultivator. A lack of licenses deters investment in the associated
hardware and supplies. Until the industry is fully up and running,
the consumer market won’t have time to fully expand.
Light at the End of the Tunnel
Fortunately, the problems appear to be nearing an end, spurred
on by a crisis point.
Around 6,000 licenses have
been issued on a temporary basis, with 1,054 of them about to
expire. Given the further disruption to the industry that problem
could cause, authorities seem to be speeding up their efforts to
tackle the backlog. The licensing agency has started issuing annual
permits, and industry insiders expect this process to accelerate
over the next few weeks. More licenses will mean more companies
cultivating cannabis, which will mean more purchases from
cultivation suppliers such as Sugarmade.
Jimmy Chan, the CEO of Sugarmade, said: "Our
customers, especially those in Santa Barbara, Monterey and Humbolt
counties, the three most prolific cultivation areas in California,
are indicating to us they too are expecting the permitting process
to break free shortly, and they are thus informing us of their
plans to accelerate purchasing. We believe this will add to our
already strong expected growth rate. We are seeing the cultivation
market increasingly shift to the larger commercial growers and we
view these operators as our prime markets. We believe, especially
considering the recently announced acquisition of Sky Unlimited,
LLC, which focuses primarily on these large cultivation operators,
we are optimally positioned to meet this expected wave of
purchasing of cultivation supplies."
The Bigger Cannabis Picture
California’s huge potential and brief licensing crisis are only
small details in the much bigger picture of the global cannabis
industry.
Tilray, Inc. (NASDAQ: TLRY) is a pioneer in the
cultivation, production and distribution of cannabis and
cannabis-derived chemicals, as well as in research to improve
understanding of them. Through affiliates in Canada, Australia, New
Zealand, Germany and Portugal, Tilray operates across multiple
continents, engaging with researchers, doctors and consumers. It
recently made a move into Latin America through its new subsidiary Tilray Latin America SpA.
Licensed by the Chilean government to produce medical cannabis,
Tilray is using Chile as a base to prepare for sales into other
Latin American markets, as local laws allow.
One of the most important trends in the cannabis industry is the
increasing interest outside companies exhibit in getting involved.
Alcohol and tobacco companies have been sniffing around the big
players of cannabis, which are relative small fry by comparison and
therefore can easily be given a proportionately significant boost.
The best-known example is Constellation Brands’ investment of $4
billion in Canopy Growth Corp. (NYSE: CGC) (TSX:
WEED), showing Constellation’s interest in the future of
the cannabis market. The involvement of big alcohol and tobacco
companies, with their experience in lobbying and public relations
for recreational drugs, will put more momentum behind the global
move towards legalization.
Like Tilray, Cronos Group, Inc. (NASDAQ: CRON) (TSX:
CRON) is making the most of the growing global market for
cannabis, doing business in North America, Latin America, Europe,
Australia and Israel. The company has recently secured C$2.4 billion in investment from Altria Group,
the owners of Phillip Morris USA. A move in line with
Constellation’s investment in Canopy Growth, this will see a
strengthening of ties between big tobacco and cannabis. As tobacco
companies see their profits hit by anti-smoking campaigns, cannabis
offers a promising alternative, and their presence provides a
promising source of finance for cannabis.
Aphria (NYSE: APHA) (TSX: APHA), another North
American company with investments in Latin America, has recently
announced a move to strengthen its presence in Europe through the
acquisition of CC Pharma. CC Pharma is a
leading distributor of pharmaceuticals to Germany pharmacies that
will provide Aphria with a useful channel to get its products onto
German shelves.
The cannabis market is becoming a truly global one, with sales
on nearly every continent and investment from huge multinationals.
Even so, some regions remain particularly crucial, and an
accelerated pace of licensing in California will bring huge
benefits to the industry.
For more information on Sugarmade, visit Sugarmade, Inc.
(OTC: SGMD)
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