From Seed to Sale: Everything an Investor Needs to Know About the Cannabis Journey

Diversification is Key: Understanding Investment Opportunities Across the Cannabis Supply Chain

What’s the first thing that comes to mind when you think about cannabis? Is it a big green leaf or bud? Or is it a joint? Maybe it’s the pot brownie you heard too many stories about in college? What you probably don’t think about is all the steps it takes to turn that bud into a joint that you can buy at your local dispensary.

Believe it or not, taking cannabis from seed to sale to experience is a long process with various touch points along the way. And even then it takes a sharp, engaged retailer to properly showcase the product’s value to potential customers, ensure business growth, and amass a sizable return for investors along the way.

Beyond the walls of the greenhouse, or wherever the plant is cultivated, the cannabis supply chain is made up of a whole ecosystem of businesses. To start, there are the traditional players that move the product from one stage to another—this includes the likes of breeders, extractors, distributors, and retailers. If we look even further, there’s a growing supporting cast of agritech companies, payment processors, and data analytics systems that have set their sights on the industry.

All of these companies give investors the opportunity to access the global cannabis market—which is expected to grow from US$14.5 billion in 2018 to US$89.1 billion by 2024—with varying degrees of risk exposure. And if you’re an avid cannabis investor looking to build a robust portfolio, understanding how the ecosystem comes together will only help you protect and enhance your returns by diversifying. With that in mind, let us take you on the seed to sale journey that happens behind the scenes.

Let’s start at the beginning

The road of cannabis production starts with breeders. These are the individuals who specialise in developing the right strain for the right high. Breeders will test their strains extensively to reach a high level of quality and frequently combine multiple strains to create hybrid products for the market. Cultivators often work exclusively with a breeder—and as they become more established, they’re likely to have a strain catalog or library with numerous varieties to their name. These organizations can be an appetizing investment avenue for investors looking to support the production of new and innovative strains.

Cultivation itself is not as simple as it seems. Like any plant, large-scale cannabis crops need irrigation, infrastructure to grow in, specialized lighting—the list goes on. With the growth of the industry, the companies behind these tools only stand to profit—and so do their investors. If you’re still figuring out whether cannabis is the right investment space for you, businesses that provide the infrastructure for cannabis cultivation offer an easy way to get involved with the sector.  

Where cannabis goes from plant to product

Once cannabis is harvested, there are a couple of paths it can take before reaching its final form. Either it becomes a dried flower product—which can then be rolled into a joint, for instance—or it goes the extraction route. Here, extractors will collect cannabis oils that will eventually be a primary ingredient in topicals, tinctures, edibles, vape products, and inhalable extracts. Due in part to their widespread use in medical cannabis products, the global extracts market is projected to grow from US$5.3 billion in 2018 at an annual rate of 22.1%, offering a viable opportunity for investors that see value in both the adult-use and medical market segments.

Prepping the product for retail, packaging businesses provide the bags, wrapping, containers, and boxes that consumers see in store. Within Canada’s legal landscape, packaging has to follow strict marketing guidelines that require visible disclosures and ban imagery that goes much beyond the product name and company logo. Seeing opportunity in scarcity, creative agencies are there to provide innovative marketing solutions for producers and retailers alike. And with Canadian cannabis spending projected to top $5.2 billion by 2024, that opportunity is sizeable.

 

The businesses on the sidelines

Like marketing agencies, the ancillary companies that are involved in the cannabis industry offer risk-averse investors a more hands-off approach to investing in the sector. Typically B2B services, they include public or investor relations agencies, data analysts, security services, growing tech manufacturers, and more. Because they’re not plant-touching, the ancillary businesses are likely not subject to the strict regulatory frameworks that abound in the industry, giving them more flexibility in their business models and revenue opportunities.

Giving the people what they want

We’ve reached the end of the road, the last stop, our final destination—before the consumer buys the product, that is. Because they come in many shapes and sizes, retailers offer a dynamic opportunity for investors who want to capitalize on the growing interest of cannabis consumers in legal jurisdictions.

Much like any other space, cannabis retail has a variety of different business models. You have boutique stores that focus on selling premium products, franchise models where individuals buy into an existing brand, and widespread multi-store operations that tap into numerous markets. And those retailers that do opt to span across multiple jurisdictions need to be able to adapt to varying market structures and regulations in order to operate successfully.

Retailers—and their dispensaries—are the face of the industry. They foster interest in the cannabis community by building strong relationships with their customers and attracting people that might have previously turned their noses up at the market. By capitalising on these relationships, they can have first-hand access to the needs and wants of the cannabis consumer, and rapidly adapt to ensure they are providing the right products for their market.

It’s in the retail space where investors have the most to gain. From strong store aesthetics to evocative branding, a successful cannabis retailer stands to engage customers in a way no other stage in the product’s journey truly can. And it’s this experience that leads to expansion that actively creates further business opportunities all the way back up the production chain.

What does this mean for investors? Retailers that can deftly navigate their regulatory landscape(s), foster deep community relationships, and adapt to meet the needs of their customers are the ones that are going to be able to grow right alongside the rest of the industry. And if you choose to fund them, that could mean a profitable return on your investment.

Interested in investing in a retailer in the cannabis sector? Check out our investor page for more information on Eden.

Photos: ShutterstockProfessional / Shutterstock, Soru Epotok / Shutterstock