In 2016 record investments were made in the cannabis space, and 2017 is off to a great start. Much talk over the last few years has been made about ancillary companies as the best way to invest as these companies do not “touch the plant.” Companies such as hydroponic stores, cultivation products, consultants, lab testing services, security, and software fit into this category. There is a big misunderstanding about the opportunity in these markets, particularly the cultivation product segment, which is the focus of this piece.
One of the most popular arguments against investing in anything related to cannabis the current state of the Federal law. This argument is weak, and yet you likely won’t change anyone’s mind who isn’t in the industry and simply “doesn’t get it.” That being said, at a recent investor conference for publicly traded Scott’s Miracle Grow, the CEO stated that they have been doing business in the cannabis space for over 20 years. We all know the compliance that public traded companies go through. They don’t appear worried at all. The recent chatter about Trump is also a false alarm, with governors recently telling him to back off on states that have already passed laws.
Cultivation products have many of the best characteristics of ancillary companies. Items such as nutrients, soils, and microbial products do not touch the plant, can sell to any dispensary or cultivator, and can easily scale globally. One of these companies completed its initial capital raise in late 2015, and completed its 3rd capital raise in the 1st quarter of 2017 at a valuation 1,950% higher. A $50,000 investment would be worth $1 million on paper.
The organic growth alone that the cannabis industry is experiencing is only going to be magnified with companies that that sell to cultivators. Market sizes exceeding $20 billion by 2020 are being commonly thrown out there by analytics firms. Don’t buy into that, as these firms are not able to account for purchase in the gray and black markets. We wouldn’t be surprised if the market already exceeds $20 billion.
Cultivation product companies are also selling overseas, with some already having 30-40% of their revenue coming from outside the US. The truth is any delay in a Federal law only helps startup companies build up market share before the big companies come in and compete. Take a strong look at these companies before it is too late.
The Gorilla Boost Team