CannabisNewsWire
Editorial Coverage: Growing demand for CBD is increasing
pressure on companies that provide key cultivation equipment and
industry supplies.
As part of its commitment to build a large and well-supplied
sales channel, hydroponic supplier Sugarmade Inc. (OTCQB:
SGMD) (SGMD
Profile) is in the process of making acquisition of
companies that supply the hemp industry. An increasing need for
supplies is coming from companies such as Canopy Growth
Corporation (TSX: WEED) (NYSE: CGC), a major cultivator
and processor making moves on the CBD drinks and well-being
markets. Cronos Group Inc. (TSX: CRON) (NASDAQ:
CRON) has entered into a supply agreement with another
provider to ensure the materials it needs for its products. Global
efforts by companies such as New Age Beverages Corporation
(NASDAQ: NBEV) and Aphria (TSX: APHA) (NYSE:
APHA) may further strain U.S. supply chains, due to
greater cultivation restrictions in other parts of the world.
- Many hemp growers use hydroponic techniques for indoor
propagation.
- These techniques allow greater control over genetics and
produce higher quality plants.
- The extraordinary rise in the North American cannabis sector is
creating unprecedented demand.
- Suppliers are responding with growth and mergers.
To view an infographic of this editorial, click here.
CBD Popularity Pushes Agricultural Supply and
Demand
The popularity of CBD is creating new trends in the agricultural
supply sector. Thanks to legal changes in Canada and the United
States, farmers and agricultural companies are rushing to increase
production of hemp and other CBD-bearing plants. For some, this
involves a shift from growing other crops to hemp, as struggling
farmers chase the profits promised by the sector. For others, it
means expanding existing hemp production to make the most of the
staggering rise in demand.
This concentrated movement is fueling demand for equipment, in
particular the specialist equipment used for indoor growing. The
agricultural supplies industry faces the possibility of real
shortages, and companies that act to solve that problem by meeting
the need could seize upon a chance to make this moment work for
them.
Hydroponic Agriculture — Is a Supply Shortage
Looming?
Growing hemp is a sophisticated business. Aside from the legal,
licensing and security issues surrounding the process, growers need
specialist equipment and seeds or clones from which to grow crops.
It’s on the equipment side that companies such as Sugarmade Inc.
(OTCQB: SGMD) are getting involved.
Sugarmade has moved into hemp equipment from another support
sector — restaurant supplies and packaging. As with its more recent
work, the company didn’t make its mark in the restaurant world by
providing products directly to customers, but rather by providing
businesses with the materials they needed to get their products out
into the world. It may not be as glamorous or high profile as
producing the end product itself, but the supporting the backend of
the business is vital to keeping those industries going.
With the dramatic expansion of interest in CBD over the past few
years, Sugarmade has taken the opportunity to diversify its work.
Still focused on growth through brand expansion and acquisition,
the company is now making those expansion and acquisition moves in
the Hemp sector, where it provides cultivation equipment and
supplies.
There are two approaches to
growing hemp: outdoor cultivation using soil and indoor
cultivation using hydroponic equipment. The choice often means the
difference between quantity and quality of plants, with the latter
increasingly dominant because of the improved reliability of
supplies.
Providers of hydroponic equipment such as Sugarmade have
therefore seen a surge in business from hemp growers. As
cultivators look to increase their hemp harvest, they also need to
increase the size and effectiveness of their growing spaces, and
that means a higher demand for equipment.
The Benefits of Hydroponics
Hydroponics is a catch-all term for a number of indoor growing
techniques. Sometimes the plants are grown in an inert layer that
substitutes for soil, providing something for the roots to grow
through. In other approaches, such as deep-water culture and
nutrient-film techniques, plants that would naturally grow in soil
are instead grown in liquid settings, with their roots floating
free. Aeroponics goes a step beyond this, with the roots exposed
and fed by sprays of artificial mist.
What each of these approaches have in common is that food for
the crop is provided in the form of nutrient solutions direct
available to the plants’ roots, instead of those plants having to
take nutrition from the soil. This technique gives growers more
control over what goes into their plants. Because hydroponic
cultivating takes place indoors, farmers also gain greater control
over the conditions in which the plants live, including
temperatures and quantity and quality of light. Together, this
allows for more consistent, higher quality growth, which can also
be tailored to increase the quantity of CBD in a plant. It’s that
quality and consistency that drives demand for the products offered
by companies such as Sugarmade.
Sugarmade provides a wide range of products. These include
equipment needed for setup, nutrients used to feed the plants,
lighting systems and tools for testing the quality of the
environment, which are essential to getting the desired results.
The surge in demand caused by rising interest in CBD has put
serious pressure on hydroponic suppliers. There have been reports
of extensive back ordering and customers having to wait for
supplies to come in. In a fast-growing industry where new or
expanding cultivators are rushing to establish their positions,
that could become a serious problem.
So what are supply companies doing to prevent an equipment
shortage?
Ensuring Flow of Hydroponic Supplies
It might sound obvious, but one of the answers is larger
businesses. Companies such as Sugarmade are dramatically expanding
their operations, thus seeing an increased level of power over
their supply chains and the capacity to both stock and sell greater
volumes of agricultural equipment. The efficiencies and reach of
larger companies, along with their financial capacity to order
supplies in larger volumes, will invigorate the hydroponic supply
chain and ensure that growers’ needs are met.
To support this goal, companies have been undertaking mergers
and acquisitions. Sugarmade has made two such moves — and the
company isn’t stopping there. As CEO Jimmy Chan
said, “Sugarmade is expecting to realize exceptional revenue
growth this year from all of our hydroponic-related market sectors.
. . . We continue to seek additional acquisitions to further boost
our already-expected robust revenue growth rate.”
Scale brings advantages beyond efficiency. Larger companies can
provide a wider range of products, and so cater to the needs of
cultivators trying out different hydroponic techniques. This
supports innovation in hemp cultivation, as equipment from a single
supplier can be used to experiment with best practices, from inert
beds and water flows to aeroponics. Variety of resources also
allows growers to experiment with their nutrient mix, thus
obtaining the best possible results from their plants.
By providing a large supply base and a wide range of products,
Sugarmade is helping to tackle equipment shortages and get hemp
growers up and running.
Relying on Hydroponics
Hydroponics are now feeding into a huge sector growing hemp and
other CBD-bearing plants.
One of the biggest companies in the space is Canopy
Growth Corporation (TSX: WEED) (NYSE: CGC). Already a
major player, the company’s purchasing power has been further
expanded over the past two years by billions in investment from
drinks giant Constellation Brands. This is seen as part of a wider
trend of companies looking to produce CBD drinks, which could
create yet another surge in demand for hemp and the equipment to
cultivate it. Canopy Growth is currently pushing forward with a
multifaceted hemp and CBD strategy and, as part of that focus, has
acquired skincare and well-being company This
Works.
The equipment needed by the CBD industry isn’t just about
agriculture. The founding of a
new R&D facility by Cronos Group Inc. (TSX: CRON)
(NASDAQ: CRON) appears to be good news for companies
equipping biotech researchers. In addition, Cronos has also
entered a supply agreement to ensure a steady
flow of concentrates needed for its products, ahead of changes in
rules on foodstuffs that will expand the market in Canada later
this year.
While much attention is on North America, New Age
Beverages Corporation (NASDAQ: NBEV) announced in April its push to become a global brand.
Selling CBD products including oils, creams and lotions, as well as
its specialist beverages, the company is targeting an international
customer base increasingly interested in the potential of CBD. Only
three years old, New Age Beverages is already making a splash with
its vibrant brand and growing product range.
Aphria (TSX: APHA) (NYSE: APHA) is also
expanding globally, with the introduction of
CannRelief, a CBD product line targeting Germany. The emergence
of a European market is likely to increase demand for CBD from
North America, at least in the short term, as many European
countries have not yet seen legal changes to ease the production of
CBD.
With CBD demand growing around the world, demand for cultivation
supplies is also increasing. Companies that put in the work to
expand their supply channels may establish profitable ongoing
relationships with a new generation of hemp cultivators.
For more information on Sugarmade, visit Sugarmade Inc.
(OTCQB: SGMD)
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