Is CBD market shaping to become the next $9-billion industry?
Decades ago, hemp-derived cannabidiol (CBD) was categorized under an extremely gray area when it comes to its legality. While technically hemp-derived CBD has long been legal across states, the distinction had been enormously blurry that only a few businesses took the risk in the market.
When U.S. President Donald Trump signed the 2018 Farm Bill into law last December, all fiber derived from cannabis with less than 0.3 percent concentration of psychoactive tetrahydrocannabinol or THC was removed under the Controlled Substances Act. Immediately, the manufacturing, distribution, and sales of hemp-derived CBD became legal across the country.
With this, analysts estimate that the market could be the next multi-billion market. Brightfield Group projected that the local hemp industry could bloat into a $22 billion market in the next four years. Meanwhile, the worldwide legal cannabis market is expected to grow to as much as $146.4 billion by end of 2025.
Now, those few businesses, that remained to be relatively small at present, are on track to reap the rewards of that immense market potential. The possibility was mentioned during the latest episode of Canna Broadcast Media’s Loudmouth News, the longest-running radio program which covers news relating to the marijuana industry in the U.S. and Canada.
Is CBD market the big success story?
In the Feb. 18 episode of Loudmouth News, the hosts discussed how big of news it is for investors that CBD in full spectrum hemp derivative can now be shipped nationwide and across the globe. They discussed breakthrough mergers and acquisitions like the one that transpired between Aurora Cannabis and Whistler Medical marijuana.
One of the hosts floated one interesting possibility: “Are these companies buying up smaller operations like how the internet industry did back in the day where they bought up all these smaller ISPs, becoming one big conglomerate?”
He was talking about how the likes of Google was once just a Ph.D. project at Stanford University back in the late ’90s but through smart acquisitions grew into a company worth $739 billion as of 2018.
His co-host said the possibility is strong especially that there have been companies like PotNetwork Holdings, Inc. (OTCMKTS:POTN), which acts as a holding company for its subsidiaries. PotNetwork Holdings owns stakes in some of the early cannabis players that grow hemp, distributes hemp, or sell recognizable branded products.
The holding company now has 15 CBD brands marketed at more than 10,000 retail stores across the U.S. Those were on top the major subsidiaries it currently has under its belt.
One of its subsidiaries is the First Capital Venture which is involved in research and production of premium grade hemp extracts which it makes available locally and internationally. Another of its subsidiaries is the Diamond CBD which product line includes CBD-infused coffee, CBD tinctures, vapes, gummies, and a whole new beauty regimen line.
PotNetwork Holdings also has assets in MediPets which sells CBD products for dogs and in Grinders Distribution which supplies high-quality grinders to vape shops across the country.
For comparison, before Google becomes the world’s largest search engine, it first underwent a reorganization in 2015 under its parent company, the multinational conglomerate Alphabet Inc. Through the years, Google also engaged in many acquisitions which included YouTube, Google Play Store, Gmail, and Google Chrome.
The next target for major acquisitions
Analysts said the year 2019 may welcome big mergers and acquisitions since most of the first players in the space were relatively small companies, at least for now. As small as they are, however, they are keen to know that they are subject for potential acquisitions and hence strategize accordingly. This is particularly true for those already going public.
“[T]he one common question they all have beforehand is how this move will position them as a potential acquisition target,” Scott Hammon, chief operating officer at MGO|ELLO National Cannabis Alliance, said. His firm provides cannabis companies with financial, tax and advisory services.
Brad Nattrass, chief executive of horticulture and cannabis cultivation company Urban-Gro, added that mergers and acquisitions may include the ancillary businesses. The latter includes companies which provide necessary support to the primary organization involved in an industry or activity. One example would be how PotNetwork Holdings is acting as a holding company for its various subsidiaries.
Nattrass also highlighted that small cannabis companies are rousing the interest of big names in the alcohol, tobacco, and soda industry which all suffered sales decline in the previous years.
The next $966-billion industry?
Back in the late ’90s, many “dot com” companies rose but only a few survived the market burst. Among the survivors so to speak are Google, Amazon, eBay, and China’s Alibaba. Coming from a burst, the internet industry had managed to generate an estimated $966 billion by 2014. The industry was also growing faster than any other sector in the U.S. in the middle of the Great Recession between 2007 and 2012.
A similar track is being projected for the cannabis industry, which some critics said may undergo burst in the coming years. However, the more optimistic ones will focus their attention on the probability that among the small players in the hemp/cannabis space at present are the “next Google,” or “the next Amazon” of the future.
Hosts of the Loudmouth News have put it more interestingly: if these hemp cannabis companies have, for example, between a penny and $35 per share at present, how much will they earn at least six years from now if they own like 13 million shares?
