Growing Cannabis Industry Creates Space for New Strategies
NEW YORK, November 13, 2018 /PRNewswire/ --
CannabisNewsWire Editorial Coverage
As the cannabis industry continues to grow, companies are using a variety of strategies to secure their places within the sector.
- The cannabis sector, currently worth over $9 billion in North America, is expected to hit $57 billion globally by 2027.
- This growth is being fueled by changes in the legal climate and a range of business strategies.
- These strategies range from R&D focus to M&A, vertically integrating supply channels in the process.
Youngevity International, Inc. (NASDAQ:YGYI) (YGYI Profile), a relative newcomer to the sector, is bringing its vertically integrated strategy from the coffee market to cannabis. GW Pharmaceuticals Plc (NASDAQ:GWPH) is focused on the medical market, developing prescription medicines among other products. Charlotte's Web Holdings, Inc. (OTC:CWBHF) (CSE:CWEB) is focused on reaching more retail outlets, pushing its CBD products out through a growing number of channels. CV Sciences, Inc. (OTC:CVSI) is primarily research oriented but is also raising its profile through sponsorship of a hemp industry conference. In Canada, Aurora Cannabis, Inc. (NYSE:ACB) (TSX:ACB) is making use of recent changes by establishing a range of new supply agreements.
To view an infographic of this editorial, click here.
A Changing Business
This year has seen huge developments for the cannabis industry in North America. In Canada, recreational cannabis became legal in the middle of October, after a year of political debate and commercial preparation. South of the border, pressure mounted for reform of federal laws to support states making their own choices, with 64 percent of Americans now saying that they favor legalization. While political maneuvering ahead of the midterm elections delayed efforts to legalize industrial hemp through the 2018 Farm Bill, voters supported the legalization of medical cannabis in Missouri and Utah and of recreational cannabis in Michigan. With cannabis now legal for medical use in 33 states and for recreational use in 10, prohibition is clearly on its last legs.
This wave of change is leading to staggering growth in the cannabis industry. Companies are seeing dramatic rises in revenue as new markets open up, new products are created and new customers cast off tradition to give cannabis a go. This is creating a new space for cannabis companies to work in, where new strategies are being tested alongside new products.
Cannabis Market Keeps Growing
For companies such as Youngevity International, Inc. (NASDAQ:YGYI) that have a significant investment in cannabis, the past few years have been promising ones. The cannabis market has steadily grown as popular sentiment-driven legalization has opened the way for companies to thrive, which in turn has strengthened their campaigns for further legalization. The success of first medical and then recreational legalization in many states and Canada has reassured others that this is a safe path to follow, creating a North American industry that was worth over $9 billion in 2017, according to a Forbes report. That value is forecast to keep rising, with a predicted value of $47.3 billion by 2027.
With notable exceptions such as Uruguay and Israel, the rest of the world has been slower to follow, but that too is changing. Germany permitted the sale of medical cannabis through pharmacies in 2017. Even Britain, one of Europe's most conservative countries, opened the door to doctors prescribing cannabis products this year after a high-profile campaign by the mother of an epileptic child. Taken all together, the global market is expected to be worth $57 billion by 2027, according to the Forbes report.
A significant part of that industry is made up of cannabidiol (CBD) products. Derived from both marijuana and industrial hemp, CBD is used in health and wellness products such as Youngevity's Hemp FX™ range. Though some industry predictions may be unreasonably optimistic, performance indicates that CBD products are increasingly popular and are expected to give a significant boost to cannabis businesses. With Congress expected to legalize widespread hemp cultivation as part of the current Farm Bill, the supply of CBD has the potential to soar.
Developing New Strategies
In the early days of the cannabis industry, corporate strategy was simple. Produce the best cannabis possible, market it within the limited options regulations allowed, and soak up the demand from customers. Now the industry is a more diverse one, from focused pharmaceutical brands to the likes of Youngevity, which combines an interest in CBD with other lifestyle products. Strategies have evolved to match the changing market.
One common path has been that of mergers and acquisitions. In a market full of small businesses, there's plenty of potential for the big movers to swallow up competitors. This has really taken off in 2018, a year that saw 145 mergers and acquisitions during its first six months, compared with 79 M&As in the first half of 2017.
Investment by and in cannabis companies has also increased. From Sugarmade's investment of a million dollars in Hempistry to Constellation Brand's decision to pump billions into Canopy Growth, companies are investing in each other to profit from different parts of the market or to easily enter it for the first time.
For others, product diversification is a common way forward. As the market grows, so does the ingenuity of the companies involved. R&D departments are producing an increasingly wide range of products, whether strains of cannabis or derivatives using CBD. Youngevity has recently added sleep and hydration products to its existing range, as the company finds more uses for CBD and more corners of the market to expand into. The spread of legalization is making it easier for companies to carry out this R&D work, leading to ongoing acceleration in the number of products coming out.
Vertical Integration
While some companies are focusing on horizontal integration, absorbing potential competitors in the same part of the cannabis business, others are looking at vertical integration.
This is the approach taken by Youngevity, with a strategy it refers to as "field to finish." This is an adaptation of the "field-to-cup" strategy the company takes with coffee, seeking to control the whole supply chain, from the cultivation of beans through to the moment the coffee is delivered to the customer. Except that this product is cannabis instead of coffee.
The field-to-finish strategy offers many advantages for a company that can achieve it. By controlling cultivation, processing and distribution, it can ensure high-quality standards, an important part of Youngevity's lifestyle brand. It can also benefit from the efficiencies and improved communication that come with an integrated supply chain. Many of the blockages that introduce inefficiencies are more easily removed in a system such as this, leading to a leaner, more cost-effective operation.
Youngevity has only recently entered the CBD market, but the company has grand plans. "We firmly believe in plant-based nutrition, and hemp (CBD) oil perfectly complements our product development philosophy," said Steve Wallach, the company's CEO. "Entering this market, which is growing almost exponentially, also should offer a tremendous advantage to our many distributors around the world."
As Wallach has repeatedly made clear, the products so far released are only the beginning for Youngevity.
Players Big and Small
With the market going through dramatic changes, both large and small companies are making significant moves to expand their slice of the pie.
GW Pharmaceuticals Plc (NASDAQ:GWPH) has built a strategy strongly oriented towards the medical market. This includes not just selling strains of cannabis but creating other medicines based on it. The company has created the first plant-derived cannabinoid medicine to gain U.S Food and Drug Administration approval, getting GW's products into the prescription drug market across the United States. By creating new and valuable medicines, it is creating a place as a prestigious innovator with customers' wellbeing at its heart.
Charlotte's Web Holdings, Inc. (OTC:CWBHF) (CSE:CWEB) is catering to the broader health and wellness market with its CBD-based products. As mainstream acceptance of CBD grows, the company is expanding into a wider range of stores and has now reached 3,000 outlets.
Like GW, CV Sciences, Inc. (OTC:CVSI) has built its business around research, using its expertise to create new products and to sell its services to consumers. CV Sciences was the first hemp CBD nutraceutical company whose products were certified Generally Recognized as Safe (GRAS) by the FDA, helping improve the image of both the products and the cannabis market. The company is further raising its profile within the industry as a sponsor of HIACON 2018, the Hemp Industries Association's 25th anniversary convention.
For Canadian companies such as Aurora Cannabis, Inc. (NYSE:ACB) (TSX:ACB), recreational legalization has opened up a whole new market that presents new opportunities and new challenges. With the market regulated province by province, companies have to set up supply agreements to cover different regions. Aurora has been busily setting up these agreements, giving it a wide distribution network over an important new market.
The expansion of the cannabis market has led to a range of strategies, from acquisitions and product development to opening up new distribution channels, leading to growth for a diversity of different companies. The next few years will show which strategies work best.
For more information about Youngevity International, please visit Youngevity International, Inc. (NASDAQ:YGYI).
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