CannabisNewsWire
Editorial Coverage: State ballots and the departure of Jeff
Sessions have led to fresh confidence in the cannabis sector.
- The cannabis industry is going through a period of huge
growth.
- Two states recently voted to legalize medical cannabis and one
voted to legalize recreational cannabis.
- The departure of Jeff Sessions removes a significant block for
the industry.
- A variety of strategies—some focused on product and others on
support services—are emerging to make the most of this market.
Generation Alpha, Inc. (OTCQB: GNAL) (GNAL
Profile) has developed a dual strategy to make the
most of this opportunity, investing in both product and supplies
for producers. MedMen Enterprises, Inc. (CSE: MMEN) (OTCQX:
MMNFF) is financially supporting further legal reform
while building up a cultivation and retail business across several
states. KushCo Holdings Inc. (OTCQB: KSHB) has
grown from a packaging company to one providing a range of support
services. As new niches emerge, The Green Organic Dutchman
(OTCQX: TGODF) (TSX: TGOD) is staking its claim through a
focus on organic, sustainably grown cannabis. Even non-cannabis
companies are profiting from this growth, with Scotts
Miracle-Gro Company (NYSE: SMG) investing in hydroponics
offerings that will supply crucial equipment to cannabis
cultivators.
To view an infographic of this editorial, click here.
A Blooming Industry
Cannabis companies are in a jubilant mood following the results
of last week’s events in American politics. At the polls, two
states voted to legalize medical cannabis while another voted to
permit its recreational use. Though Congress lost several pro-cannabis Republicans, a majority for
the Democrats, America’s less conservative party, is a good omen
for reform. And with President Trump’s sacking of Jeff Sessions,
the country is now rid of a staunchly anti-cannabis attorney
general.
This opens the way for companies with strong cannabis strategies
to make bold moves in the coming year. From entering new states to
producing fresh product lines, the options for growth and
development are many. A few key considerations define the
strategies of the current cannabis players.
Product Versus Infrastructure
Two basic approaches to business strategy currently dominate the
cannabis market — one based on infrastructure and the other based
on product. However, these strategies don’t have to be separate,
and Generation Alpha, Inc. (OTCQB: GNAL)
is building strong businesses by combining them. And the way this
strategy plays out shows a lot about where the industry is at.
The product strategy is an obvious one and typically garners the
most public attention. Companies going down the product path focus
on the production, processing, and retail side of cannabis. These
are the companies setting up farms and dispensaries, feeding the
growing demand from consumers across North America. It a strategy
that Generation Alpha recently moved into, under its previous name
of Solis Tek, with the acquisition of
cultivation and processing facilities.
The other strategy is to provide support services and supplies
for product-oriented companies. As the market grows, there will be
more and more need for such services, which profit off cannabis but
are better insulated from shifts in the market and its political
oversight. Generation Alpha started out with this strategy, as a
vertically integrated technology innovator, developer, manufacturer
and distributor bringing products and solutions to cannabis
growers. Providing horticultural and lighting supplies, the company
grew by providing cannabis growers with the equipment they
needed.
Each strategy can work well on its own, but running a double
strategy, while more complex, has real potential benefits. As both
supplier and customer for cultivation equipment, companies such as
Generation Alpha can create great efficiencies in their supply
chains. And by developing both business streams, they can benefit
from the security of a picks-and-shovels approach while also
accessing the growing profits of the front-line cannabis trade.
Location, Location, Location
Choosing which states to operate in is an important
consideration for American cannabis companies. Although it is
widely anticipated to change, cannabis currently remains illegal at
a federal level, and it is only through state-level initiatives
that the market has been allowed to emerge. Cultivation and retail
effectively operate on a statewide scale at best, so looking at
where a state stands now and where it is likely to go in the future
is vital to making savvy business decisions.
Arizona, where Generation Alpha recently
acquired cultivation and processing facilities, provides a
useful example of how local conditions shape the market. The state
made medical cannabis legal in 2010. Despite a closely fought vote,
opponents of cannabis have failed to overturn or limit the market
despite ongoing campaigns. The state’s supreme court even overturned a rule keeping medical cannabis off college
campuses. Arizona’s medical cannabis market seems secure.
In 2016, an attempt to legalize recreational cannabis in the
state failed by a narrow margin. Medical legalization faced a
similar setback in 2002, only eight years before passing. As recent
generations are generally more liberal toward cannabis than their
elders, it is likely that a similar pattern will play out for
recreational cannabis, with a successful vote almost inevitable.
Companies that have become established under the medical licensing
laws will be in a strong position to make the most of this.
“We are excited about this opportunity in Arizona and its growth
and profitability potential,” said Generation Alpha CEO Alan Lien.
“We are pleased to have partners such as Future Farm Technologies
and Yorkville Advisors to collaborate and support the build-out and
growth of this facility. Our collective experience and knowledge in
cannabis will position this Arizona operation for success. We are
excited to commence Phase 1 of the development and construction of
our state-of-the-art cultivation and processing facility and look
forward to many additional opportunities in the cannabis
industry.”
Expanding Operations
The potential of the Arizona market hasn’t gone unnoticed by
other companies. MedMen has invested heavily in getting into the
state, acquiring a top
Arizona medical cannabis wholesaler.
This is part of a wider pattern of companies spending big to
secure their spots in a burgeoning cannabis sector. For example,
drinks giant Constellation Brands
has spent billions investing in a Canadian cannabis company to
give itself a foothold in the industry. Canadian and American
companies are looking at cross-border investment, while outsiders
are moving into the market as well.
This big spending only adds to the strength of infrastructure
plays such as Generation Alpha’s strong position in cultivation
equipment. Much of the money being invested will go into growing
more cannabis. That means more hydroponics, lighting and related
services will be needed across the legalized states. Any investment
in cannabis cultivators ultimately becomes an investment in their
suppliers.
Where Next for Cannabis?
The next few years promise solid growth for the cannabis
industry in North America. Even before this month’s political
upheavals, analysts projected that the $9 billion industry would grow to $47.3 billion by
2027.
The fallout from the mid-terms means that investors can be even
more confident about what happens next. The forced resignation of
Jeff Sessions removes one of the biggest obstacles to growth for
the cannabis industry in the United States. Sessions, a staunch
opponent of cannabis, had rescinded the Obama-era memo committing
federal law enforcement to non-intervention in state-level cannabis
industries. With him gone, cannabis shares
rose as businesses and investors looked forward to a more
tolerant regime.
This won’t mean an end to campaigning for MedMen
Enterprises, Inc. (CSE: MMEN) (OTCQX: MMNFF), the largest
financial supporter of progressive marijuana laws, but it does mean
that the company’s campaigning efforts are more likely to pay off,
creating space for expansion of its cultivation and retail
business. The company already operates 19 facilities in four states
and has recently announced the addition of a fifth, through a move into Arizona. Despite the limitations
created by federal laws, MedMen is showing that cannabis companies
can operate on an inter-state level.
Like Generation Alpha, KushCo Holdings Inc. (OTCQB:
KSHB) entered the sector by providing support services to
cannabis producers, in the form of packaging solutions. The company
has since expanded its operations, creating a one-stop shop for the
cannabis market. Seeing the huge potential currently available, it
has recently formed an advisory board to guide strategic growth
initiatives, making the most of a constantly expanding market.
While KushCo provides another example of the infrastructure
strategy, The Green Organic Dutchman (OTCQX: TGODF) (TSX:
TGOD) is focused on product. A producer of organic,
sustainably grown cannabis, the company is making the most of the
connection between cannabis consumption and concern with
environmental issues. In a market large enough to start dividing
into specialist niches, it is tapping into the higher prices people
will pay for organic products.
Not every company profiting from cannabis is focused on that
market. Lawn, garden and outdoor living company Scotts
Miracle-Gro Company (NYSE: SMG) has been benefiting from
the demand for cultivation equipment that cannabis’s success
brings. It recently acquired the United
States’ foremost distributor of hydroponic equipment, which is
crucial to the cultivation of cannabis. As the cannabis industry
grows, so too does hydroponics.
Political change offers further growth for an already
flourishing industry, allowing profits from a wide range of
strategies.
For more information on Generation Alpha, visit Generation
Alpha, Inc. (OTCQB: GNAL)
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