Passage of California Assembly Bill Expected to Spur More Growth in the Hemp, CBD Markets

CannabisNewsWire Editorial Coverage

DENVER, Aug. 28, 2019 /PRNewswire/ -- With a powerhouse economy worth more than $3 trillion, California's economy ranks as the fifth largest in the world. Current legislation is expected to pave the way for the state's hemp market to explode.

With a series of smart acquisitions and brand expansions, Sugarmade Inc.  (OTCQB:SGMD) (SGMD Profile) appears to be a strong pick-and-shovel presence as California looks at passing hemp-friendly legislation. Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON) just announced a new hemp-based acquisition, while Greenlane Holdings Inc. (NASDAQ:GNLN) and The Green Organic Dutchman (TSX: TGOD) (OTCQX: TGODF) (TGOD Profile) have both inked deals that strengthen their presence in the hemp industry as well. KushCo Holdings Inc. (OTCQX:KSHB), another industry supplier, just created a new sales division aimed at mass distribution, industry education and compliance, and building CBD-brand distribution networks.

• Pending California legislation could rewrite hemp demand in California, whose economy ranks as fifth largest in the world.
• A more welcome legal environment is expected to create significant additional demand in the marketplace.
• Sugarmade's careful strategy may place the company in an ideal position as the industry prepares for change.

To view an infographic of this editorial, click here.

Legislation Could Warm Up State's Hemp Market

No state has had a bigger impact on the growth of consumer hemp and CBD products than California. But the Golden State may just be getting warmed up relative to hemp and CBD consumption. Current state legislation — Assembly Bill 228 — could rewrite the hemp demand equation for farmers and industry supplies across the entire United States.

While California has been liberal relative to cannabis legalization, state regulators have been downright prudish relative to allowing hemp cultivation and the use of CBD added to food and beverages. This attitude could all change soon as California's state senate has until September 15, 2019, to pass AB 228. The legislation, which clarifies the statues of CBD in foods and drinks, passed with a unanimous vote in California's Assembly, and California Gov. Gavin Newsom is widely expected to sign the bill into law, making the legislation effective immediately.

Hydroponics Critical Link in Hemp Cultivation

The California market fully opening to CBD in food and beverage is expected to create significant additional demand in the marketplace. Not only will consumer brands benefit but so too will cultivators and those companies that supply the industry, including companies such as Sugarmade Inc. (OTCQB:SGMD).

Sugarmade is a brand development company with a focus on providing hydroponics to the burgeoning hemp market. That's why companies such as Sugarmade are a critical link in the hemp-farming process. Essential to growing consistent, high-grade hemp, hydroponics provides critical lighting equipment necessary to control photosynthesis, specialized nutrient mixes to provide plants with the food they need, and measurement solutions and environmental controls used by staff to measure, monitor and control the quality, strength and health of the plants.

Companies with expertise in hydroponics are essential in the hemp-industry supply chain, but because of the previously restricted market, these companies have been relatively small. All that is changing as numerous companies look to meet the needs of the growing hemp market, and Sugarmade appears set to become a leader among these companies.

Sugarmade's calculated strategy entails deliberate growth on two fronts: organically by brand expansion and through acquisitions. Sugarmade has been working on a handful of deals that provide it with key components that may place the company in an ideal position as the industry prepares for change, especially in California.

"Sugarmade plans to integrate these businesses fully as soon as is possible, making us one of the larger suppliers to this growing marketplace," said Jimmy Chan, CEO of Sugarmade. "Additionally, we are in the process of vetting other possible acquisitions to further enhance the portfolio of hydroponic and cultivation supply products. We are certainly excited about our prospects for the remaining part of this year and into next year."

Sugarmade Strengthening Position as Industry Leader

Sugarmade has been actively seeking acquisitions and executing new supply contracts to strengthen its place as a leader in the hemp-industry supply space. The company's most recent action involves exercising its option to invest in Hempistry Inc, a company founded by Sugarmade's own Chan. Utilizing advanced plant genetics and technological innovation, Hempistry is now scaling operations to approximately 2,600 acres aggregated between its subsidiaries, while adding to the product value chain and enhancing production efficiencies.

"These investments into Hempistry make sense for Sugarmade, not only from a financial standpoint relative to probable rate of return, but also from a business development standpoint," said Chan. "As Hempistry and other local cultivators grow, we believe Sugarmade's status as a potential supplier to cultivators will also continue to rise."

Sugarmade's other brands in the hemp sector include Zenhydro.com, a comprehensive online hydroponics supply outlet; AthenaUnited.com, a specialist company providing hydroponic supplies to large commercial cultivators; CarryOutSupplies.com, a leader in paper and plastic supplies; and BudLife Cannabis Storage Solutions, which offers the world's only patented intelligent packaging, storage and distribution for medicinal plants.

The company also recently announced that it is set to acquire the flagship operation of Hydro4Less, which is expected to produce about $5 million in revenues and be profitable this year. In the agreement, Sugarmade gained an option to purchase two additional Hydro4Less retail operations, currently producing in excess of $20 million annually.

In addition, expanding on an already-existing marketing agreement with Bizright LLC, SGMD announced that it will acquire Bzrth Inc. These accretive acquisitions will make Sugarmade one of the largest publicly traded hydroponic supply companies in the world.

Companies Moving into Welcome Environment

As legislation in the United States moves toward creating a more welcome environment, Cronos Group Inc. (NASDAQ:CRON) (TSX:CRON) has established a new growth opportunity in the United States with its acquisition of a hemp-based products platform, Redwood Holding Group LLC. CRON has entered into a definitive agreement to acquire four of Redwood's operating subsidiaries. Redwood manufactures, markets and distributes hemp-derived, CBD-infused skincare and other consumer products online and through retail and hospitality partner channels in the United States under the brand, Lord Jones(TM). Redwood's products use pure hemp oil that contains natural phytocannabinoids and terpenes found in the plant. The transaction is expected to close in 3Q 2019, subject to customary closing conditions and regulatory approvals.

Greenlane Holdings Inc. (NASDAQ:GNLN), one of the largest global sellers of premium cannabis accessories, CBD and liquid nicotine products, recently announced an exclusive U.S. distribution partnership with Cookies for the national launch of the Cookies hemp-derived CBD product line, including Cookies CBD cartridges for the G Pen Gio. Cookies CBD products will feature terpene profiles inspired by famous Cookies strains, such as Cereal Milk, London Pound Cake 75, and Gelatti. "We are positioning ourselves as a CBD category captain, building a portfolio of the most-respected brands in the sector through exclusive distribution agreements," said Greenlane chairman and CEO Aaron LoCascio. "Over the past several months, we have signed exclusive distribution agreements to build a portfolio of the best existing and new CBD offerings, including exclusive deals with Bloom Farms, Cookies, Select, Mary's Nutritionals, and Slang. The pace of these particular partnerships illustrate that Greenlane continues to be the partner of choice for cannabis brands that seek to build global brands with hemp-derived CBD products."

The Green Organic Dutchman (TSX: TGOD) (OTCQX: TGODF) (TGOD Profile) recently signed a multiyear agreement with Neptune Wellness Inc. for extraction, formulation and packaging services, including exclusive rights on processing and manufacturing of certified organic products for the Canadian market. The largest deal for a processor to date, the agreement cements TGOD's leadership position in organic consumer wellness products and represents a significant investment in high-value manufacturing and supply chain jobs. Neptune's expertise will enable TGOD to quickly scale up production of a wide range of consumer wellness products. Under the terms of the agreement, TGOD will allocate more than 230,000 kilograms of cannabis and hemp biomass for Neptune to process and transform into premium certified-organic consumer wellness products. The contract between TGOD and Neptune covers a period of three years and is expected to be back-end loaded with the first year accounting for approximately 20% of the total value.

KushCo Holdings Inc. (OTCQX: KSHB) is expanding its platform by launching a new retail services division. Led by an experienced team, the division is designed to facilitate partnerships with large-scale, go-to-market operations focused on CBD mass distribution. The new business unit will also focus on industry education and compliance as well as building distribution networks of CBD brands across conventional retail channels. "The maturation of the cannabis industry has opened up countless avenues for business development across the industry's supply chain," said KushCo Holdings president and CRO Jason Vegotsky. "The cannabis industry continues to scale at an ever-increasing rate, and we are excited to be adding two seasoned CPG sales veterans with analytical and customer-centric backgrounds to our team."

As the attitude surrounding hemp cultivation, distribution and use continues to warm up, opportunities within the industry are certain to increase. Companies that are committed to providing quality services within the space look to benefit exponentially as the market appears certain to expand.

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

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