Cannabis crops stand to benefit from optimized agricultural irrigation technologies.

The demand for cannabis-infused consumable goods and pharmaceuticals places cannabis crops on the same level as many of the world’s other important agricultural staples. In fact, with the food, beverage and wellness sectors as central drivers of the industry, the global cannabis market is on course to reach US$166 billion by 2025, according to Euromonitor International.


Experts in the agricultural industry share the same sentiment. Curt Livesay, certified crop adviser and owner of plant nutrition crop consulting company Dynamite Ag, shared that cannabis is “the next frontier of commercial agriculture.” According to Nic Easley, founder of Colorado-based Comprehensive Cannabis Consulting (3C), which caters to companies across the cannabis supply chain, cannabis has the potential to become one of the most valuable commodities in the US. “Whether outdoors, greenhouse or indoors, all it takes is the right knowledge and expertise. If you can grow other crops properly, then you can grow marijuana.”

The overall market for precision agriculture technologies is expected to reach US$10.55 billion by 2025. According to Research and Markets, irrigation represents the largest submarket for these precision agricultural technologies. As a water-intensive crop, the global cannabis market represents an attractive opportunity for precision agricultural technologies capable of yielding high-quality plants.

Quality irrigation essential for cannabis crops

First domesticated in Central Asia around 6,000 BCE, cannabis is one of the world’s oldest cultivated crops. Across centuries and cultures, the cannabis plant has been farmed as an agricultural product, providing generations with food, fiber for textiles and medicine for a variety of illnesses. However, cannabis’ distinctive biological assets set it apart from many other agricultural crops.

“Mainly, what differentiates cannabis crops from more classic crops such as tomatoes, corn, apples and rice is the fact that the cannabis plant contains a large variety and concentration of active pharmaceutical ingredients,” Ohad Haber, CEO of agricultural technology company Water Ways Technologies (TSXV:WWT), told the Investing News Network (INN). “There are hundreds of cannabinoids, terpenes and flavonoids in each cannabis flower, making it so unique and desired amongst various industries.”

The unique properties of the cannabis plant are also what has held back commercial development of the crop in the modern era compared to the selective optimization of other agricultural products. The psychoactive properties of tetrahydrocannabinol (THC) have attracted many recreational users to the plant for as long as its buds have bloomed, but have also led to the plant receiving a negative reputation. Worldwide government restrictions on cannabis have crippled scientific studies regarding the plant’s medicinal effects and the best practices for cultivation and selective breeding for cannabis crops.

“From a macro standpoint, cannabis selective breeding is one of the industry’s main goals in an era of increased legalization,” said Haber, whose company has launched an internet of things (IoT) controlled irrigation and fertilization system for cannabis cultivators and growers known as CANNAWays. “Because the plant has only recently gained enormous attention globally and been freed from many restrictions and regulations, this territory is relatively behind compared to other crops in the agricultural world. These days, cannabis producers and researchers aim to narrow down the gene pool to only selected strains that fit the demand of pharmaceutical companies, just as it was done years ago with other crops to fit the needs of farmers, the food industry and other industries.”

Precision irrigation and agricultural techniques

In terms of agricultural production, cannabis has similar requirements to other crops in terms of water, fertilizer and light. However, unlike other crops, cannabis requires a much higher amount of irrigation and fertilization, as well as more precise growing systems in order to provide uniformity throughout all plants and to adhere to local regulations and protocols.

“Cannabis is a water-intensive crop, and optimizing water input through precision irrigation systems can help maximize crop quality and yield as well as reduce costs and increase profit margins,”  said Haber.

Not only is cannabis a water-intensive crop, but the plants grow best when water is applied over a longer duration of time and evenly distributed above the root base. Like many plants, moisture control is important to growth, crop yield and product quality. Not enough water can result in smaller plants and nutrient deficiencies. Too much water can also have a negative impact, including root rot and root dieback.

“(Under-watering) may also lead to reduced growth and yields as photosynthesis is restricted when plants shut down stomata to conserve moisture. Water-stressed plants may also be more prone to pests and diseases and other physiological disorders,” Dr. Lynette Morgan, a horticulturist and a partner with Suntec International Hydroponic Consultants, said. When it comes to hydroponic systems, Morgan believes overwatering is far more common than underwatering, and it can cause significant plant health concerns. “The number one cause of Pythium and other root rot pathogen infection is roots that have become damaged by oversaturation and the subsequent root suffocation this causes,” she said.

In order to maximize plant growth and protect against water stress and oversaturation, advanced automated irrigation systems provide precise amounts of water and nutrients. Through advanced monitoring technology, cannabis farmers can maintain moisture balance throughout the life cycle of the grow.

Recognizing the opportunity in the emerging cannabis market, agricultural technology companies are optimizing their products and services for a new era of cannabis farming. For example, Water Ways Technologies’ research and development team developed one of the world’s first customized Internet of Things cannabis irrigation and fertilization systems through its US$500,000 partnership with Kibbutz Gan Shmuel and Cronos Group (NASDAQ:CRON,TSX:CRON). The CANNAWays system was launched for commercial use in July 2019 and allows for higher yields and consistency for cannabis grows while reducing energy, water and fertilization costs.

“Working in such a new industry challenges the company to create innovative solutions, and sometimes improvise, based on experience acquired from past projects and recent collaborations within the cannabis industry, as well as years of experience in the field of agriculture,” Haber said. “CANNAWays reduces water waste and maintains consistency in crop health through smart management tools such as remote sensors that can monitor moisture levels, automatically collect data and make rapid irrigation adjustments to ensure all plants are optimally watered and fertilized.”

In addition to water, proper nutrients and safe pest control are also important components of successful cannabis cultivation. Agricultural biotech company MustGrow Biologics (CSE:MGRO) is working to develop and commercialize its unique natural biofumigant that acts as a fertilizer, nematocide and fungicide. MustGrow’s organic solution uses the mustard seed’s natural defense mechanisms to protect plants from pests and diseases. The company also recently signed a partnership with Triage Plant Services to deliver nutrient technology solutions for hydroponic applications that improve nutrient utilization in support of early growth and optimal flowering.

Takeaway

Cannabis is an agricultural industry first and foremost, which means that many of the established practices and principles used on other crops can be adopted and improved upon. As the global cannabis industry expands, there are multiple avenues of opportunity for agricultural technology companies developing innovative agricultural technologies to reap the greatest value from cannabis crops.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information in this article should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

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Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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