Why Diversified Cannabis Companies Should be On Every Investor’s Radar

“Strong data on cannabis markets, consumers and the competitive landscape, will help drive brands to make effective decisions to drive their strategic direction,” writes Bethany Gomez, Director of Research for Brightfield Group, a cannabis-focused market research firm. “[The data] will help investors to ensure they are identifying the optimal places to put their money.”
More than 69 percent of consumers regularly use at least two different types of cannabis products, according Brightfield Group data; 34 percent regularly use at least three.
The increasing segmentation in the cannabis industry is drawing companies into diversification based on consumer interest.
“Investing in a diversified cannabis company reduces investor risk simply by not putting all of one’s eggs into one basket,” said Factor, a well-known expert in the medical marijuana industry who has two decades of experience in cultivating medical marijuana and manufacturing cannabis by-products . “MYM ensures diversification through multiple revenue streams in geographically diverse markets and is constantly looking for new opportunities to capitalize on the changing wave of global public opinion regarding cannabis products.” MYM Nutraceuticals’ CBD lines include products for both humans and animals, and the company is involved with building production facilities around the world, limiting exposure to any one environmental or geopolitical risk.

Geographically diverse companies see faster profit growth, study finds

Businesses that have customers in multiple cities are far more likely to be prosperous, according to a study released this year by the Business Development Bank of Canada (BDC).
A study of the energy sector showed that of 998 Alberta companies surveyed, with five to 499 employees, seven in 10 of them with clients in more than one city had 10 percent or higher annual revenue growth in the past three years. Only three out of 10 companies with clients in just one city saw the same level of revenue growth.
“The message is clear—diversification is a critical strategy for Canadian businesses to succeed in these challenging times,” said BDC chief economist Pierre Cléroux in a release. “Business owners who fail to do so may be missing growth opportunities and putting their company under unnecessary risk.”
“Six in 10 such companies [in the construction industry] achieved 10 percent or higher annual revenue growth over the last three years—compared to only three in 10 companies that offer only one product or service line,” BDC said.
And the cannabis industry is no different. Canadian companies are eyeing US and global markets, and as Daniel Pearlstein, analyst for Dundee Capital Markets says, “Canada is probably three to four years ahead of any other country in terms of the scale of companies that we’ve been building.”
While more American states are voting in favor of recreational legalization―now 1 in 5 Americans live in a state where recreational marijuana is legal―US companies are still faced with federal restrictions that prevent them from receiving corporate tax breaks, exporting products across borders, and investment in research and development, because patents are federally issued.
As legalization takes hold in the US, Canadian companies are flush with the opportunity to export their knowledge, and their product, down south.
“Canada’s large-scale commercial medical marijuana program is the most sophisticated in the world, which has created demand for Canadian licensed producers to share their expertise in exchange for fees, royalties or shares of their businesses,” writes Sunny Freeman of the Financial Post.
Canadian cannabis businesses that have geographically diversified have a clearer path to profit.

Types of Revenue Streams

Now let’s talk about the types of industry segments that companies could venture towards in hopes of successfully diversifying.
Dispensary Operations
Often the first point of entry into the cannabis industry, dispensary operations come with a high level of competition. In markets which limit the number of dispensaries, competition for licenses is fierce.
In Arizona, over 700 applicants competed for 31 dispensary licenses by October 2016, while markets that don’t limit the number of dispensaries like Colorado and Washington resulted in squeezed margins with the large number of stores putting strong downward pressure on product prices.
Commercial Products
These are products that facilitate the industry’s operations, but don’t touch the plant. Examples include real estate; packaging; marketing; legal services; consulting; software development; and suppliers of growing needs like equipment, and gardening products.
These are attractive because of fewer, if any, regulations, and they are easily scalable.
Edibles and Infused Products
This segment has been spurred on by the rapid growth in demand for edibles and infused products, which accounts for approximately one-third of cannabis products sold.
Cultivation Facilities
Cultivation and retail was the top sector for capital raises in 2017 with $478 million of private cannabis investment, according to “Investing in the Cannabis Industry 2017”, an industry report published by New Frontier Data and Viridian Capital Partners.

Grow with the industry

Investors will struggle to find an industry with a more consistent long-term growth rate than marijuana. North American legal sales grew at 34 percent to $6.9 billion in 2016, and total legal cannabis sales in North America are projected to reach $21.6 billion by 2021, growth that is larger and faster than the dot-com era.
Understanding the ins and outs of any of the thousands of cannabis companies your money may go towards will help you make a better decision now, and in the future, as the industry continues to grow.
This INNspired article was written according to INN Editorial standards to educate investors.