Californian Cannabis Industry Blazes Trail of Growth for US

DENVER, Oct. 8, 2019 /PRNewswire/ -- California continues to be the leading center for the U.S. cannabis industry, with huge growth already taking place and plenty of potential for more. Cannabis Strategic Ventures NUGS (NUGS Profile) is among the growing number of California cannabis companies boasting multiple cultivation, manufacturing and distribution licenses. Its wholly owned and operated flagship farm, NUGS FARM, recently completed its first harvest. Like Cannabis Strategic Ventures, Acreage Holdings Inc. ACRGF is invested up and down the supply chain, with new brands targeting markets in California and elsewhere. Green Thumb Industries Inc. GTII GTBIF recently announced expansion in Pennsylvania, catering to the state's 180,000 registered cannabis users. Halo Labs Inc. AGEEF provides vital support services to the California market, using cutting-edge technology to extract active ingredients from cannabis. Cresco Labs Inc. CL CRLBF has financed a fresh wave of expansion through a sale-and-leaseback agreement on its existing cultivation properties.

• California's industry is expected to be worth $3.1 billion this year and could reach more than three times this size as it takes over from the illegal market.
• Public companies are expanding thanks to support from the state and ancillary businesses.
• Federal legislation keeps many of these companies from stock exchange listings, so they are traded as over-the-counter shares.
• Cultivation operations provide the bedrock for their growth.

To view an infographic of this editorial, click here.

California Leads the Way for Cannabis Industry

As with many other significant economic and social changes, California is currently leading the way in the legal cannabis market. The first state to legalize medical cannabis has created a whole new sector of the legal economy and continues to set the standard that the rest of the market follows. The words cannabis and California go hand in hand.

The fall harvest is approaching, highlighting how much cannabis cultivation in California has thrived. Growing consumer demand in both the medical and recreational cannabis segments has led to constant growth for the industry. Consumers want more and better cannabis, and companies are moving to meet that demand. Cannabis investment is rising as companies realize the potential rewards of investing in cannabis.

Maturing Industry Makes More Cannabis Stocks Available

Investors both inside and outside California have been turning their attention to the state's cannabis industry. These investors are flocking to pick up stocks in cannabis-related enterprises such as Cannabis Strategic Ventures NUGS, a cannabis-related holding company that has recently made significant investments in the Californian cultivation market.

The early days of the cannabis industry were uncertain ones for investors. Though California had taken the bold step of legalizing the medical cannabis industry, the shape of that industry and the profitability of companies remained uncertain. Questions about how the federal government would respond, given that this state-level legislation was at odds with federal laws shaped by the war on drugs, contributed to that uncertainty. Further changes such as the legalization of cannabis in California for recreational purposes, which happened only three years ago, have meant ongoing uncertainty and adaptation.

In-state progress has positioned companies such as Cannabis Strategic Ventures for success. The state has a fully regulated market, with licensing arrangements for the production, processing and sale of cannabis. Sophisticated infrastructure is emerging to nurture the industry, both in the government machinery that regulates it and in the businesses that provide materials and services.

The result is a growing number of public companies, some new and others well established. Investors have a range of options to choose from and greater confidence than ever before that their money is in safe hands.

California's Billion-Dollar Cannabis Industry

The central driver for growth is the high demand for cannabis that exists in California. The state's legal cannabis industry is expected to reach $3.1 billion in sales this year, according to a report from research firms Arcview Market Research and BDS Analytics. This expected demand has fueled spectacular growth in the number and scale of cultivation operations, as new ones enter the market every year. Cannabis Strategic Ventures' NUGS FARM site made its first sales this September and is building toward its full operational capacity for the start of next year. Others are in similar positions, gearing up from first sales to big cultivation and sales operations.

These sales are likely to increase as more of the state's shadow market in cannabis moves into the light. Illegal operations in California are estimated to be worth $8.7 billion this year. The state is working to eradicate these operations and create a safer, better-regulated market that will protect consumers, workers and well-run businesses.

Operations such as NUGS FARM are both a result of and a contribution to the erosion of the illegal market. As police crack down on illegal operations, customers move toward legal outlets to obtain their drugs. In addition, the existence of legal outlets is itself a draw away from the illegal sellers. By providing a safe, legal way for customers to obtain what they're looking for, with more consistent results and value for money, enforcement agencies are eroding the illegal market's customer base.

Investing in Cannabis Off the Exchanges

Despite this, many cannabis companies are unable to list their stocks on American exchanges. Instead, the likes of Cannabis Strategic Ventures are traded as over-the-counter stocks on OTC Markets.

The reason behind this is federal legislation. Though many states have changed their views, the United States government still treats cannabis as a Schedule One drug, legally regarded to be as dangerous as heroin or LSD, despite the overwhelming scientific evidence against this stance. This means that companies that directly cultivate and sell recreational cannabis are barred from listing on U.S. financial exchanges. Some ancillary and biotech companies have found a way around this and onto the exchanges, while others have been listed in Canada instead. But for many, over-the-counter sales between traders remain the way forward.

The Practicalities of Cannabis Cultivation

Despite the challenge this situation creates, there is no shortage of funding for cannabis growers. For the first time, investors are starting to learn what a cannabis cultivation project looks like.

Many of these operations are based on indoor growing, which allows for greater security and consistency of results. NUGS FARM is a 6.5-acre greenhouse operation, using specialized farming equipment to feed, water and monitor the plants. The farm has licenses to cultivate, manufacture and distribute cannabis, giving Cannabis Strategic Ventures the right to be involved in and provide quality control through the entire supply chain. NUGS can produce tens of thousands of pounds of cannabis annually, with the plants coming from the company's own unique, high-quality flower strains. NUGS has started booking sales of this produce as it gears up to full capacity in early 2020.

This is the shape of the Californian cannabis industry — sophisticated, forward looking and constantly expanding. Challenges such as the illegal market and federal regulations are being overcome — or even turned to the industry's advantage.

All In On Cannabis

Across the 33 states in which medical or recreational cannabis is now legal, companies are enjoying similar patterns of expansion.

Starting with its founder's investment in a cannabis license in Maine eight years ago, Acreage Holdings Inc. ACRGF has since expanded to create a company operating in states across the United States. A team of experts with experience in everything from legislation to healthcare to cultivation, the company is invested all along the supply chain, from cultivation to manufacturing to dispensing to branding. Acreage Holdings recently rolled out a new set of products under its House of Brands strategy. California is among the target markets for these products, tapping into that large and growing customer base.

Green Thumb Industries Inc. GTII GTBIF is another multistate operator with cultivation centers in a number of states. The company is focused on the medical rather than the recreational sector of the market, focusing on the health benefits that cannabis can bring. Green Thumb Industries recently opened its seventh retail store in Pennsylvania, a sizeable market with 180,000 in-state registered medical cannabis patients. Such moves have led to a tripling in Green Thumb's revenues in the second quarter of this year.

The industry isn't just about cultivation and retail; there's a large base of support services backing that. Among those companies is Halo Labs Inc. AGEEF, which specializes in the extraction of active ingredients from cannabis. This extraction allows the chemicals to be used in products ranging from medicines to vaping liquid to food and drink. Halo's leading-edge technology gives it an advantage in the extraction market, a fast-moving segment based on swiftly changing technology. Halo Labs was recently awarded two new licenses for operations in California, where it already has a 9,400-square-foot campus dedicated to the processing of cannabis products.

A vertically integrated company working across the United States, Cresco Labs Inc. CL CRLBF is one of the leading multistate cannabis companies. Cresco deals with the whole supply chain of cannabis, including cultivation, processing, packaging, shipping and sales in its own dispensaries. The company recently made a sale-and-leaseback deal on two of its cultivation properties in Illinois to provide extra funds for expansion in the state. Like California, Illinois has plenty of room for expansion, and the industry there is expected to eventually reach $2 to $4 billion in value. The deal will position Cresco to make the most of that growth.

The cannabis industry is growing in many states, following the lead of California, where a powerful market is forging the way ahead for the rest of the country.

For more information about Cannabis Strategic Ventures, please visit Cannabis Strategic Ventures NUGS.

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