CannabisNewsWire
Editorial Coverage: A boom in demand for cannabidiol (CBD) has
created an alarming shortage, which savvy hemp companies are
aggressively looking to solve.
Cultivation supplies company Sugarmade Inc. (OTCQB:
SGMD) (SGMD
Profile) has acquired several other suppliers,
allowing it to benefit from economies of scale. Canadian cultivator
Tilray Inc. (NASDAQ: TLRY) is investing heavily in
new growing space. Canopy Growth Corporation (NYSE: CGC)
(TSX: WEED) has expanded from Canada into the United
States and is collaborating with other companies to meet demand.
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) has
received a substantial inflow of funds from a tobacco company and
is investing some of it in R&D. Charlotte’s Web
Holdings Inc. (OTCQX: CWBHF) (CSE: CWEB) is focusing on
growing high-quality hemp to supply a range of novel products.
To view an infographic of this editorial, click here.
- Demand for CBD has soared thanks to consumer interest.
- Legalization nationally in the United States through the farm
bill has led to more cultivators and a rising demand for
cultivation supplies.
- Companies are rising to meet these supply challenges through
expansion, consolidation and innovation.
CBD and the Challenge of Demand
The ability to meet customer demand is one of the fundamental
challenges for any industry. If businesses can’t keep up with
demand, they don’t just miss out on an immediate opportunity for
profit, they risk losing the attention of customers in the long
term.
For a relatively new product such as CBD, that problem is
particularly acute. Though demand for the product is currently
high, the industry is not well established, making it critical that
companies reinforce customer habits through supplying the products
they’re seeking. Being new, however, makes the supply problem
particularly challenging, as production techniques and supply
pipelines are not fully developed for massive consumption. The
future of the industry will depend upon which companies are able to
meet this demand and how they do it.
The CBD Boom
The CBD industry has seen a staggering boom in the past. This
growth has created opportunities for companies such as brand
expansion and acquisition firm Sugarmade Inc.
(OTCQB: SGMD), which is making a strong play into the
sector, as well as new companies focused purely on CBD.
The demand for CBD is easy to explain. Recent research into its
uses has suggested that this naturally occurring compound can be
useful in a range of health and well-being roles, including
managing pain and helping users to relax. This compelling research
has naturally drawn the attention of customers seeking new options
to improve the way they feel, especially those consumers who prefer
to avoid heavily processed chemicals.
Publicity around CBD has further raised demand. Some of this
attention comes from emerging CBD companies, whose marketing
efforts have raised the profile not just of their own brands but of
the sector as a whole. Additional exposure has come from the battle
to make hemp cultivation legal across the United States. Because
hemp provides most of the available CBD, this process also brought
hemp production into the public spotlight. Companies such as
Sugarmade found their businesses attracting far more attention — so
more demand.
This demand culminated with the passage of the 2018 Farm Bill.
Signed into law just before Christmas, the bill legalized the
production of hemp on a national level. This makes hemp production
a far more straightforward and reliable source of income, and will
allow more farmers to benefit from a profitable cash crop. As
companies rush to enter the sector or expand production in response
to the bill, demand for the services and equipment they need has
soared. As a provider of the hydroponic cultivation supplies on
which many hemp farmers depend, Sugarmade and its pending
acquisition subsidiaries — AthenaUnited.com and Zenhydro.com — has
found itself swamped with orders.
Shortage of CBD
This surge in demand following the farm bill has created an
undeniable opportunity within the CBD sector — along with a
challenge. Fortunately for Sugarmade, it’s a challenge that they
appear to be instrumental in solving.
Hemp cultivators are currently unable to
provide the volume of plants that customers want. One of the
reasons is that the cultivation, processing and supply systems
simply aren’t large enough. The CBD industry was already on an
expansion path as it tried to meet growing demand before the farm
bill. Now with that demand growing further, it’s going to take time
and a big push to achieve what people are after. Making an industry
legal doesn’t make it magically appear.
Then there’s the unreliability of the CBD levels in hemp. The
chemical content of the plants is small and hugely variable.
Relatively small shifts in the makeup of a crop can have a
significant impact on how much CBD is produced.
Cultivating larger, more reliable crops is vital to the future
of the industry. Manufacturers are eager to rise to that challenge.
However, to do so they need to get the supplies to get them off the
ground, including hydroponic systems, feed chemicals and the
clippings, or clones, from which much hemp is grown.
Looking at the effect of this shortage in just one state,
Sugarmade CEO Jimmy Chan was optimistic about the
effect on his company. “With at least 42,000 acres of hemp
expected to be planted in Kentucky and considering an average plant
density per acre of well over 1,000, farmers in Kentucky will need
hundreds of millions of clones over the coming years,” he said.
“When these numbers are multiplied over the many other hemp
cultivation states, it is easy for anyone to see the strong demand
scenario that is quickly developing.”
Responding to the Shortage
To meet the demand for CBD, hemp cultivators will clearly need
to improve both the quantity and the quality of their crops.
It’s easy to see how an increase in quantity will have knock-on
effects for suppliers such as Sugarmade. The company’s pending
acquisition subsidiaries AthenaUnited.com and ZenHydro.com are
seeing orders for their cloning supplies skyrocket, with backorders
building up as they rush to meet unprecedented demand.
The search for more reliable levels of CBD is also contributing
to this demand. Hydroponic systems give cultivators control over
the growing process. By experimenting with hydroponics and
controlling the light, plant food and environment, cultivators can
find ways to grow plants with predictable and higher levels of CBD.
This experimentation will create even more demand for hydroponic
materials. Sugarmade should be central to the improvement of these
processes.
To provide supplies as efficiently and profitably as possible,
Sugarmade has gone through a period of expansion, acquiring other
companies in the hydroponics and CBD sector. This model of
consolidation is being repeated across the industry as businesses
seek efficiencies of scale.
“Sugarmade plans to integrate these businesses fully as soon as
is possible, making us one of the larger suppliers to this growing
marketplace,” stated Chan.
“Additionally, we are in process of vetting other possible
acquisitions to further enhance our portfolio of hydroponic and
cultivation supply products. We are certainly excited about our
prospects for the remaining part of this year and into next
year.”
Expanding Potential
Sugarmade isn’t the only CBD-related company using acquisitions
to expand potential. Canadian company Tilray Inc. (NASDAQ:
TLRY) has undertaken a series of acquisitions, including Manitoba Harvest, the world’s largest hemp
foods company, to strengthen its position in hemp. The company has
responded decisively to the recent supply shortage in hemp and
related plants in North America, in part by investing $32.6 million to significantly expand it
production space across three sites, increasing its cultivation and
manufacturing footprint by nearly 20%.
Another of the big Canadian companies, Canopy Growth
Corporation (NYSE: CGC) (TSX: WEED) has opted into
investing south of the border thanks to the farm bill. The company
has set up a hemp-growing facility in New York state and acquired another hemp company, AgriNextUSA. Canopy
Growth has also been collaborating with other CBD and related
companies to boost their shared output. One collaboration with PharmHouse has seen Canopy
Growth provide high-quality genetic stock to PharmHouse’s growing
facility. In return, Canopy Growth will benefit from an offtake
agreement to obtain flowers from the plants PharmHouse is
growing.
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON)
has benefited from attention on the sector through a huge injection
of outside cash. Tobacco giant Altria has agreed to invest C$2.4 billion in Cronos Group, providing the
company behind Marlboro with a way into a new sector. Fittingly,
Cronos Group is investing some of its funds in a new R&D facility that will work on vaporizer
products. Vaping has become a popular way of consuming CBD, so the
investment may allow Cronos to benefit from the market from
multiple angles.
American CBD producer Charlotte’s Web Holdings Inc.
(OTCQX: CWBHF) (CSE: CWEB) has been using proprietary
genetics to work toward the goal of high-quality, low-cost hemp.
The company has also been creating innovative new products to make
use of the growth in CBD. Its recently expanded
pet line offers the promise of calming dogs and easing joint
pain brought on by age.
Rising demand for CBD has created a challenge, but it’s a
challenge that smart companies are definitely ready to meet.
For more information on Sugarmade, visit Sugarmade Inc.
(OTCQB: SGMD)
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