CannabisNewsWire
Editorial Coverage: A surge in hemp production means big
business for hydroponic suppliers.
- Hemp production set to massively increase in the United States
this year.
- Increased production driving high demand for hydroponic
supplies.
- Hydroponics companies are responding with expansion and
acquisitions.
Sugarmade Inc. (OTC: SGMD) (SGMD
Profile) has strategically acquired several companies
to meet demand and expand its foothold. Canadian-based
Tilray Inc. (NASDAQ: TLRY) has expanded production
in both Canada and Europe while Canopy Growth Corporation
(NYSE: CGC) (TSX: WEED) is developing projects in the
United States, and Cronos Group Inc. (NASDAQ: CRON) (TSX:
CRON) has received massive outside investment to fuel its
growth. Companies such as Aphria (NYSE: APHA) (TSX:
APHA) are enlarging their indoor grow operations as they
too rush to meet demand.
To view an infographic of this editorial, click here.
Hemp Bonanza
The legalization of hemp in the United States has ignited
further growth in a massive new industry. Already under development
through state laws and federally approved test sites, this
historically valuable cash crop is now legal for cultivation across
the country. With demand for CBD soaring, growers are scrambling to
capitalize on an unprecedented opportunity.
However, sudden growth means a sudden need for supplies, skills
and experience, none of which can be conjured from thin air.
Obtaining these creates challenges for growers and opportunities
for suppliers, and the match between those two varies across the
map. As the hemp rush unfolds, some are doing better than others at
rising to the challenges of hemp farming.
Challenges for the Hemp Industry
December 2018 saw the passing of the 2018 U.S. Farm Bill and
with it the legalization of hemp cultivation in the United States.
While the crop had previously been cultivated on test sites and
through state-level laws, this was the first time in a century that
this once-important cash crop was officially allowed by the U.S.
government again. The move has created a whole new playing field,
thrusting Sugarmade Inc.
(OTC: SGMD) into the spotlight.
Sugarmade is a hydroponics supply company catering to the hemp
market. As such, it has seen an extraordinary few years of growth.
Even before the Farm Bill, the hemp industry had been growing. CBD,
an active ingredient extracted from hemp, has become an incredibly
popular product in the last few years. The plant is used in foods,
oils, vaping fluid, drinks and health treatments. Research
indicating its potential to support health and well-being has
fueled consumer interest. The existing producers of hemp have seen
profits soar, and now that the floodgates have opened, other
businesses are rushing to get in on the act.
This creates massive challenges both for the industry and for
individual businesses. Though hemp is now legal, it is tightly
controlled, and producers must be able to grow hemp in accordance
with strict rules, as well as to validate that both their
facilities and their products meet these standards. That means
employing skilled staff and using high-quality equipment.
The challenge of obtaining that equipment is made all the
greater by the sudden and widespread nature of the expansion.
Scores of companies all looking for equipment at once puts pressure
on suppliers. If they have the supplies and the reach to widely
distribute those supplies, then there’s a huge opportunity for
growth. If they don’t, they’ll struggle to meet customer
demand.
The struggle to meet that demand is likely to create a situation
of haves and have-nots, in which some growers are able to expand
while others fail to fulfil their objectives. Who succeeds and who
fails will be decided to a large extent by who can find a reliable
hydroponic supplier.
Equipping Growers
Despite the romantic image of farmers turning over a patch of
land to a new crop, most hemp farming occurs indoors using
hydroponic systems. That’s why companies such as Sugarmade are such
a critical link in the hemp-farming process.
The hydroponic equipment needed to grow consistent high-grade
hemp is varied and complex. A broad range of lighting equipment is
needed to control photosynthesis. Specialized nutrient mixes
provide plants the food they need to grow. And measurement
solutions and environmental controls are necessary for staff to
measure, monitor and control the myriad of factors that determine
the quality, strength and health of the plants.
Given the circumstances, companies with expertise in hydroponics
are imperative to provide supplies, but due to the previously
restricted market, they’ve been relatively small. All that is
changing in the rush to meet the needs of the burgeoning hemp
market. Larger companies are desperately needed, and Sugarmade
appears set to become one of those companies.
Sugarmade’s strategic intent is growth on two fronts,
organically by brand expansion and through acquisitions. The
company has a few deals in the pipeline that are pending audit and
funding.
“Sugarmade plans to integrate these businesses fully as soon as
is possible, making us one of the larger suppliers to this growing
marketplace,” said Jimmy Chan, CEO of Sugarmade. “Additionally, we
are in the process of vetting other possible acquisitions to
further enhance the 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.”
The Local Picture
Even with such bold moves, it’s not possible for a company to
expand everywhere at once, and hydroponic suppliers must choose
where to focus. A focus on states with a strong presence in hemp is
a good way to ensure a large market for supplies.
One area that’s rich in potential is Kentucky. A state with a
strong history of tobacco growing, Kentucky is facing the reality
that people are moving away from smoking. Hemp offers an
alternative cash crop that some of the state’s farmers have been
quick to leap upon. Approximately 16,000 acres of hemp were planted
in Kentucky last year, and this is expected to
nearly triple to 42,000 acres in 2019. The state has already
received five times more applications to grow hemp this year than
last. Sugarmade is catering to this boom through a supply agreement
with Kentucky-based Hempistry Inc., which will help Hempistry
achieve the nearly tenfold increase in hemp growing it has planned
this year.
Sugarmade is also developing strong distribution
channels in California, one of the first states to change its
laws and embrace the rise of hemp. California’s large population
and positive attitude towards CBD and hemp makes it another prime
target for expansion.
By becoming an integral link in hemp production in these
high-production states, Sugarmade grows organically by brand
expansion, locks in revenues and is positioned to capture an
outsized market share across the United States.
Competition Heats Up
The rapid rise of hemp and hemp-related markets has meant that a
growing number of companies are jockeying for position in the hemp
and CBD sectors, and some of them are seeing serious expansion.
Tilray Inc. (NASDAQ: TLRY), a Canadian company,
has been expanding through acquisitions. The company recently acquired Manitoba Harvest, the largest hemp
foods company in the world, to give it a position in a
strategically important portion of the hemp market. This comes
alongside other initiatives such as a move into
Europe. These strategic moves have won praise for Tilray’s
leadership team.
Another Canadian company and one of the largest in the sector,
Canopy Growth Corporation (NYSE: CGC) (TSX: WEED)
is making strong moves to expand south in the wake of the Farm
Bill. It has established a hemp-production
facility in New York state and acquired hemp
enterprise AgriNextUSA. This allows the company to make the
most of America’s swing towards hemp and work to become a leading
player as the market heats up across North America. Canopy Growth
already has an extensive range of licenses and distribution deals
north of the border, giving it a strong base from which to build
its U.S. business.
The excitement around hemp has drawn interest from companies
outside the sector. Altria, the tobacco giant behind the Marlboro
brand, is looking to expand its opportunities as tobacco faces
ongoing challenges. Like many Kentucky farmers, Altria is looking
to hemp and related products for potential solutions. It recently
closed a deal to invest C$2.4 billion in
Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON),
providing Altria with a way into the hemp sector. The funds will
give Cronos resources to expand during this critical phase of
market growth in the States.
In testament to value, Aphria (NYSE: APHA) (TSX:
APHA) is fending off a
hostile takeover by Green Growth Brands. In addition, Aphria
recently received a license amendment to expand its
growing space, which makes it an appealing prospect for other
companies looking to increase their capacity.
The hemp bonanza has just begun. Like every new market,
shakeouts and consolidations are bound to happen. The strong will
survive while the weak will fail. The same holds true for the
hydroponic suppliers. Given the circumstances, it’s inconceivable
that many small suppliers will survive. The victors will be those
who can get to markets early and scale through agreements and
acquisitions. Sugarmade is making all the right moves to not just
survive but also thrive.
For more information on Sugarmade, visit Sugarmade, Inc.
(OTCQB: SGMD)
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