Cannabis Companies Seek Strong Strategies to Meet Growing Demand

July 11, 2019 08:00:01

CannabisNewsWire Editorial Coverage: With demand outstripping supply, successful cannabis companies are following smart core strategies and reporting strong revenues.

Golden Developing Solutions Inc. (OTC: DVLP) (DVLP Profile) has used a mix of acquisitions, diverse brands and products, and increased production footprint to meet customer demand and report significant revenue increases, including its strongest second-quarter numbers ever. Industry giant Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) has followed a similar path, though some change may follow the recent departure of its co-CEO. Tilray Inc. (NASDAQ: TLRY) has invested heavily in increasing production while reaching into new markets such as the United Kingdom. Medmen Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) and Curaleaf Holdings Inc. (CSE: CURA) (OTCQX: CURLF) have both shown the potential for growing multistate businesses in the United States, despite the challenges created by federal legislation.

  • Increasingly liberal laws have allowed demand to show in the legal market, but supply has not yet caught up.
  • To meet this demand, the industry needs to increase production.
  • Individual companies are using acquisitions and diversification to improve their revenues.

To view an infographic of this editorial, click here.

Expanding Business

The cannabis, hemp and CBD sector is experiencing a period of huge expansion. With medical cannabis now legal in 60% of U.S. states, recreational cannabis legal in many states as well as Canada, and hemp production legalized on a federal level, North America has become home to a thriving industry. What was relegated to illegal markets and fringe cases only 20 years ago is now the source of an economic boom.

In this brave new world of legal business, cannabis companies are looking for ways to maximize their profitability and ensure a strong position as the market keeps expanding. So what are the strategies bringing success for the growing cannabis companies, both big and small? And how are those strategies contributing to the development of the sector?

Expanding Production

For the companies working in this sector, such as Golden Developing Solutions Inc. (OTC: DVLP), their work in the space is producing strong growth and sales numbers. From March 2018 to March 2019, Golden Developing Solutions saw an 800% jump in performance. Further growth was announced in May, as the company went from strength to strength.

“As we projected, top-line performance is accelerating across all metrics following our recent investments,” said Triant. “Everything is clicking right now.”

For Golden Developing Solutions, some of its growth is coming by expanding production. With the cannabis industry being so new and tightly regulated, production is relatively limited. And with demand rising rapidly, especially for hemp-derived CBD, the industry is currently struggling to meet customers’ needs. This demand supports high prices but still means that producers are missing out on opportunities, as there is untapped potential in the market.

Golden Developing Solutions is just one of the companies expanding its production capacity in response to this trend. The expansion is a complex undertaking, as a hemp or cannabis production facility requires a specially adapted building, hydroponic equipment to grow the plants, security and other support facilities, and an appropriate license from the relevant local authority. When a new growing space is established, such as Golden Developing Solutions’ recently announced 25,000-square-foot facility in Denver, Colorado, it’s big news for both the company and the industry.

This move in Colorado by Golden Developing Solutions was a direct response to that gap between supply and demand. Already equipped with much of the equipment it needs, and with licensing in place to produce marijuana infused products, DVLP has identified an ideal space with promising potential.

“Our CBD Infusionz segment is bursting at the seams right now,” said CEO Stavros Triant. “Demand already vastly outstrips supply capacity. This new facility directly addresses that issue, and should provide the necessary room for the explosive growth that we anticipated when we made that acquisition in March.”

Acquisitions and Subsidiaries

Increasing production space is the only way for the industry as a whole to address supply shortages. But for individual companies, other options to increase their presence in the sector are available.

The past two years have seen a huge surge in acquisitions in the cannabis sector. These acquisitions have allowed companies to grow in size, resulting in increased supplies and sales. Though it doesn’t directly lead to an increase in overall supply, the benefits in scale and efficiency mean that, in the long term, this coming together of companies could lead to better supplies.

For Golden Developing Solutions, its most important recent acquisition has been Infusionz LLC, a manufacturer of CBD products. Completed in March, the acquisition gave Golden Developing Solutions control not just of Infusionz’s production base but also of its established brands and retail links. Building relationships with customers is a tricky business in an industry where licensing limits marketing options and where brand allegiances are just starting to form. Acquiring a brand for which demand already outstrips supply is invaluable.

This is a common pattern for mergers and acquisitions in the cannabis and CBD space. Though brands may be relatively small scale compared with other industries, they are often not folded into existing lines on acquisition. The benefits of experimenting with new brands and tapping into their customer base outweigh what might be gained by merging output to supply a smaller number of brands.

A More Diverse Approach

Infusionz isn’t the only subsidiary in Golden Developing Solutions’ armory. In addition to Where’s Weed, a core pillar of the company since 2011 connecting medical and recreational cannabis consumers with local dispensaries, delivery services, strains and more, the company is also focusing its attention on Where’s CBD.

Similar in nature, Where’s CBD is a new technology resource and future online marketplace connecting CBD consumers with local businesses, brands and educational content across the United States, helping people quickly find the right products for themselves or their loved ones.

Providing a powerful opportunity to capture both customers and purchasing data while providing distribution channels for brands, Where’s CBD is a diverse addition to the company that inherently adds more value to the overall ecosystem and foundation that has been built thus far.

By increasing production, acquiring smaller competitors, and diversifying their products and services, cannabis companies are becoming stronger than ever.

Among these strengthening companies is Canopy Growth Corporation (TSX: WEED) (NYSE: CGC). If any company can be considered an established giant in such a young industry, it’s Canopy Growth. Emerging from the Canadian market in 2013, Canopy Growth quickly rose in power off the back of the Canadian medical cannabis sector. As of April 2019, Canopy Growth was the largest cannabis company in the world as measured by market capitalization and showed no sign of faltering. Like Golden Developing solutions, it has followed the three main paths to growth in the sector, including diversifying its product line to suit a market that now includes recreational cannabis and CBD derivatives as well as medical cannabis. The recent departure of co-CEO Bruce Linton has caught observers by surprise but is unlikely to disrupt Canopy Growth’s ongoing rise.

Another of the big Canadian companies, Tilray Inc. (NASDAQ: TLRY) recently announced the investment of $32.6 million in expanding its cultivation and manufacturing facilities. The expansion work, taking place over three sites, will increase the company’s production and manufacturing footprint to 1.3 million square feet. The company’s growth includes reaching into new markets, with the recent announcement that it has exported bulk amounts of cannabis oil into the United Kingdom. The United Kingdom only allowed the use of cannabis oils recently — with stringent restrictions. Some expect this to become the thin end of the wedge, as many in the country would like to see cannabis rules liberalized, especially where the drug can meet medical needs. By being one of the first bulk providers in the country, Tilray could establish itself as an important name before the British market is even fully formed.

Of course, there’s still room for improvement in the legal situation in the United States, and Medmen Enterprises Inc. (OTCQX: MMNFF) (CSE: MMEN) has established itself as one of the largest financial supporters of progressive marijuana laws. The gap between federal laws and those in individual states is an ongoing problem for companies working in North America, making it hard to carry out cross-state operations. Despite this, Medmen has managed to establish a multistate business working across 19 facilities that, through a move into Arizona, bring business to five states.

Another U.S. company, Curaleaf Holdings Inc. (CSE: CURA) (OTCQX: CURLF) is a vertically integrated medical and wellness cannabis company whose strategic focus is specifically on areas where demand is most likely to go unmet. Working in states such as Florida, Massachusetts, New Jersey and New York, which are highly populated but have limited licensing, the company is bringing its products to customers who may struggle to get the cannabis and CBD derivatives they are looking for. Curaleaf has used acquisitions to help with this strategy, with the recent acquisitions of Emerald Dispensary.

By diversifying, increasing production and acquiring other companies, cannabis businesses are expanding to meet previously unmet demand.

For more information on Golden Developing Solutions, visit Golden Developing Solutions Inc. (OTC: DVLP)

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