Denver Colorado – November 14, 2018 – 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. (OTC: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) (OTC:MMNFF) is financially supporting further legal reform while building up a cultivation and retail business across several states. KushCo Holdings Inc – Ordinary Shares (OTC:KSHB) has grown from a packaging company to one providing a range of support services. As new niches emerge, Green Organic Dutchman (OTC: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 (The) (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. (OTC: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.”
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. – Ordinary Shares – Class B (Sub Voting) (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 – Ordinary Shares (OTC: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, Green Organic Dutchman (OTC: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 (The) (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 about Generation Alpha, please visit Generation Alpha, Inc. (OTC:GNAL).
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