Hydroponics Increasingly Key as Booming Cannabis Sector Goes to Next Level

DENVER, November 14, 2018 /PRNewswire/ --

CannabisNewsWire Editorial Coverage 

With Canada's decision to decriminalize cannabis nationwide and the 2018 U.S. Farm Bill's provision to potentially make industrial hemp and hemp-derived cannabidiol (CBD) legal nationwide, the cannabis CBD product sector is gaining a strong foundation.

• Analysts expect runaway growth in the cannabis and CBD markets.
• Industry is scaling up amid regulatory reform.
• Underlying growth metrics are bullish for hydroponics suppliers and cultivators alike.
• Branding and marketing are increasingly important and tied to quality control.

Numerous interests stand to benefit as the cannabis sector begins to hit its stride, ranging from cannabinoid biopharma developers to cultivators with rapidly expanding acreage footprints. Pick-and-shovel plays such as hydroponics supplier Sugarmade, Inc. (OTC:SGMD) (SGMD Profile) could be some of the biggest winners, quietly supplying tons of hardware to a variety of end users without having to jump through the all the legal hoops. Tilray, Inc. (NASDAQ:TLRY), one of the first companies licensed to produce medical cannabis as dried flower in Canada, has quickly become known for its full-spectrum cold-extracted cannabinoids with clearly indicated tetrahydrocannabinol (THC) and CBD potencies. Canopy Growth Corporation (NYSE:CGC) (TSX:WEED) has parlayed its leadership in cannabis and hemp with dried, oil and softgel capsule products into a landmark $4 billion investment from beer, wine and spirits major Constellation Brands, Inc. Cronos Group, Inc. (NASDAQ:CRON) (TSX:CRON), which operates two wholly owned Canada-licensed producers, is making its presence felt across five continents. And Aphria Inc. (NYSE:APHA) (TSX:APHA) is also making serious waves as a globally minded cannabis producer, having just recently been approved for uplisting to the New York Stock Exchange.

To view an infographic of this editorial, click here.

Historic Market Forces Create a Perfect Storm 

After more than eight decades of prohibition, cannabis has gone from a black market to a tax revenue-generating multibillion-dollar industry in a handful of years. It is an industry nipping at the market share heels of sectors like alcoholic beverages, food and drink, supplements and now even biopharmaceuticals. The market for just one of over 100 different cannabinoids, the non-psychoactive CBD, was recently projected to break $22 billion by 2022. CBD alone could have "profound impacts" across the consumer packaged goods (CPG) and pharma industries according to Brightfield Group, potentially outpacing the broader cannabis market combined. It would be a major boon to the U.S. market if industrial hemp and CBD become legal under the latest Farm Bill.

Recent analysis in a report from Amadee & Company cites baseline market metrics such as over 37 million people in the United States using cannabis (both legally and illicitly) as contributing to a North American market worth over $41 billion this year, which is on track to hit $95 billion by 2026. The more conservative figures from Arcview Market Research and its research partner BDS Analytics are the $9.2 billion in sales seen in 2017, and a projection of $47.3 billion within 10 years. Either way, investors are looking at some low-hanging CAGR fruit, and the sector as a whole has scaled up enough that it is now seemingly much easier to pick winners that can thrive, regardless of potential governmental policy drift.

Many End Markets - One Stop Shop for Hydro Hardware 

Sugarmade, Inc. (OTC: SGMD), headquartered in northeastern Los Angeles County on the edge of the Angeles National Forest, has already established a formidable presence in the hydroponics supply market with brands such as ZenHydro.com, CarryOutSupplies.com and BudLife. The company also recently launched a massive new $1 million initiative to cement a foundational position in the emerging U.S. industrial hemp and CBD market through an investment in privately held Hempistry, Inc., a Kentucky-based farmer (23,000 acres) of an ultra-rich CBD strain of hemp.

Hydroponics has rapidly emerged as the dominant strain in the cannabis cultivation industry when it comes to medical cannabis, or products that want to emphasize stringent environmental cultivation controls and overall consistency. The KD Market Insights report projects a six-year CAGR of 20.7 percent, as a $5.22 billion 2017 hydroponics market grows to $13.84 billion in 2023. According to another report, cannabis cultivation will be a major driver of sector growth, with just the U.S. hydroponics market set to clock in at 20.3 percent CAGR from 2018 to 2025, hitting around $3.7 billion.

These are significant advantages for SGMD as the company pursues its binding definitive agreement to acquire Nevada-based Sky Unlimited, LLC, which has developed a solid reputation throughout the full spectrum of cultivation markets. Its robust AthenaUnited.com website lists everything from advanced lighting systems such as Hortilux lamps and ballasts to complete hydroponics kits such as the AeroFlo 60 aeroponic system from General Hydroponics, which super-oxygenates the nutrient solution. The AeroFlo line is a great example of a brand that growers, academics and researchers alike have praised for delivering consistently hearty growth rates and yields. Consumers from various cultivation industries have come to trust that they can find the best environmental control systems and cutting-edge nutrients, as well as plant care and more general gardening supplies on the site.

Ready to Launch  

Sugarmade will retain all employees and completely assume all operations and liabilities via the acquisition. The company anticipates that the Sky Unlimited deal will be highly accretive for shareholders and has further increased the previous 500 percent annual revenue growth projection made back in July, of $30 million during 2019, to a whopping $70 million. This handsome increase owes a lot to how easily integrated the parallel business lines of Sky Unlimited and Athena are to SGMD's existing model, as well as the extent to which the deal will allow Sugarmade to not only access the larger commercial cultivation market more directly but also enhance its emphasis on brands in a market where brand loyalty still means a great deal.

Scheduled for January 2019, the deal is subject to an extensive audit of the Sky Unlimited operations, but confidence is high that this latest acquisitive foray by Sugarmade will spell share price appreciation gold for the company's shareholders. In fact, things are apparently looking so good overall for the company that management has begun positioning for a potential NASDAQ uplisting, tapping the requisite legal team to expedite the process.

Symbiosis amid Competition 

The broader market is set up nicely for SGMD to take advantage of, but the reality is more symbiotic than predatory.

Tilray, Inc. (NASDAQ:TLRY) was the first company to legally export medical cannabis from North America to Europe, Australia and New Zealand. One of the top names in both cultivation and research, Tilray is on deck to report Q3 financials this Nov. 13 after a strong quarter in which the company successfully closed a $450 million private placement funding run with qualified institutional buyers. The company is one of the pioneers in clear labeling of THC and CBD concentrations and has a public-facing dedication to compliant and effective products that lead the industry by example.

Canopy Growth Corporation (NYSE:CGC) (TSX:WEED) prides itself on the highest quality cannabis, whether it is ultimately distributed as dried flower, oils and concentrates, or precisely formulated softgels. The company has a strong hand in industrial hemp for producing CBD, and now that alcoholic drinks giant Constellation Brands (which has over 100 brands to its name) recently closed its $4 billion investment in the company, Canopy is poised to strike hard and fast across the more than 30 countries worldwide that are in the process of advancing some form of permissible cannabis regulation for adult use or medicinal purposes.

Cronos Group, Inc. (NASDAQ:CRON) (TSX:CRON) is increasingly a global player, with operations in Canada, Colombia, Germany, Poland, Israel and Australia. The company launched its second recreational cannabis brand this year and has two wholly owned Canada-licensed producers to its name, as well as a 21.5 percent stake in British Columbia-based Whistler Medical Marijuana Company, which is licensed to produce and sell medical marijuana and cannabis oil.

When Aphria Inc. (NYSE:APHA) (TSX:APHA) uplisted from the OTCQB to the NYSE, it was not just big news for the company but for the cannabis industry and smallcap markets as a whole. Aphria has seen an impressive rise from a relatively small player to a true global leader in cannabis. The company's rigorous study of the end-user market and ingenious development of a variety of brands to suit every buyer segment has delivered bottom-line results across the company's entire line of capsules, oral solutions, oil syringes and single-unit vaporizer cartridges.

Once-in-a-lifetime Early-adopter Opportunity  

As attitudes and regulations open up the global market for the end products being developed in the cannabis market, from commercial drinks containing CBD to lab-grown cannabinoid biopharma indications, some of these smaller companies are starting to look to many analysts like potential all-stars. Differentiating factors such as brand presence, product execution and market access/penetration are important analytical vectors. However, key capabilities such as being a picks-and-shovels supplier are of particular note, whether one is talking about hydroponics hardware for production or producing the raw cannabis that other companies rely on.

For more information about Sugarmade, please visit Sugarmade, Inc. (OTC:SGMD).

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