DENVER, Feb. 19, 2019 /CNW/ -- As the cannabis sector consistently shows impressive growth, acquisitions within the market allow cannabis companies to develop greater vertical integration.
- Cannabis companies are looking to acquire other organizations to strengthen specialist knowledge and skills.
- Similar moves have led to impressive success in industries such as coffee production.
- The strength of the cannabis market is also attracting other additional investment.
Youngevity International Inc. (NASDAQ:YGYI - News) (YGYI Profile) is following the vertically integrated model, having recently acquired a company specializing in cannabis processing machinery. Canopy Growth Corporation (NYSE:CGC - News) finalized an all-cash transaction to acquire one of the world's most technologically advanced vaporizer companies. In an all-stock option, Aurora Cannabis Inc. (NYSE:ACB - News) agreed to purchase a British Columbia-based craft grower, which offers premium organic products produced at low volumes. Late last year, MedMen Enterprises Inc (OTC:MMNFF - News) signed a definitive agreement for the acquisition of one of the largest medical cannabis providers in the United States. And with the cannabis sector as a whole seeing healthy growth, GW Pharmaceuticals Plc (NASDAQ:GWPH - News) recently completing a public offering to fund further growth, raising $345 million to expand its cannabis-oriented pharmaceuticals work.
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Cannabis Companies Turn to Vertical Integration
The global cannabis industry continues to grow — especially in the United States and Canada — creating promising opportunities for companies eager to find ways to improve their productivity and leverage their strengths. A wide range of companies covering the production, processing, marketing, and sales of cannabis and cannabidiol (CBD) products are vying for a position in the space. Consequently, smart organizations are looking for ways stand out from the rest.
Many are opting for vertical integration. Their strategy is simple and straightforward — by bringing together production, processing and distribution, companies can cut costs, improve efficiency and ensure quality control.
Acquisitions for Growth
This all-under-one-roof strategy is one that the management at Youngevity International Inc. (NASDAQ:YGYI - News) not only believes in but has successfully applied. A leading omni-directional lifestyle company, Youngevity recently moved into the cannabis sector through investment in CBD.
CBD is one of two significant active ingredients found in cannabis. Unlike THC, which until a few years ago was the best-known of these chemicals, the nonpsychoactive CBD does not induce the highs or impairment that accompanies THC. In addition, recent research has indicated that CBD could have a broad range of benefits general well-being and health, leading to a burgeoning market for CBD products. This promising research, along with a growing popular acceptance of cannabis, has led to a resurgence in the growth of hemp — a variety of cannabis that can be rich in CBD but low in THC — and hemp-based products.
Youngevity saw the opportunity and entered the cannabis space last year, with the release of its Hemp FX product line. Hemp FX products are designed to help consumers relax and soothe muscle pain. As it launches this new product offering, the company will leverage the success it has already seen through its hybrid model of direct selling, social selling and e-commerce.
To further take advantage of this opportunity, Youngevity has announced its acquisition of Khrysos Global, a large hemp and CBD machine manufacturing company. Khrysos's proprietary technology is specifically designed to extract active ingredients from hemp and cannabis, thereby providing the best possible yields from crops. The company also offers planning and consulting for cannabis companies looking to take full advantage of technology throughout the extraction process.
"Our acquisition of Khrysos is extremely exciting on a number of levels," said Youngevity CEO Steve Wallach. "Beyond the fact that Khrysos' hemp-CBD extraction technology is far more efficient than most anything else on the market, we're acquiring a turnkey business model here. Their systems are applicable to the entire industry and are immediately implementable across our own line of HempFX products as well as in offtake agreements we have through our existing business relationships. We see this as providing not only immense value to our company, but also to our investors–by selling not just the extraction systems, but also servicing and operating those systems via a rental model, they will provide us with continuous, ongoing profitability."
Field to Finish
The Khrysos acquisition appears to be a logical step for Youngevity, not only because of the company's interest in the hemp market but also because of its already-proven business model. This model, which the company refers to as "field to finish," has been successfully tested through its CLR Roasters subsidiary.
In this model, CLR is involved in every stage in the coffee production process, from farming and green coffee distribution to roasting and sales of branded goods. This vertically integrated approach includes a plantation and dry-roasting facility in Nicaragua, established U.S. facilities and sales networks, and the company's own coffee brand. The comprehensive approach allows the company to control the entire process of coffee production from the field to the consumer's cup, not only delivering profit at every level but ensuring the quality and the reputation of the company's branded products.
The acquisition of Khrysos and a 20 percent ownership stake in the Carolina Cannabis Company allows Youngevity to follow a similar model in the cannabis sector. By taking ownership of the production, processing, branding and sales of its CBD product line, the company plans to profit every step of the way, while also ensuring that its products are produced both efficiently and to the highest standards.
The acquisition also gathers the skills and experience of Khrysos's technical and managerial staff under the same roof as Youngevity's already assembled team, another critical advantage. The cannabis sector is still young, and smart companies regularly evaluate and refine their processes as the industry grows and evolves. Having specialist knowledge about the equipment used in processing cannabis will only strengthen Youngevity's ability to be nimble and adapt, optimizing its processing systems and ensuring a smooth supply chain and efficient manufacturing.
Like any win-win acquisition, both the purchasing company and the company being acquired are set to benefit from the deal. Youngevity's experience in reaching customers will provide opportunities for the technology developed by Khrysos to expand and reach a wider market, scaling up its equipment and advisory business.
"This is an exhilarating time for us," said Dave Briskie, president and CFO of Youngevity. "This is just the first step Youngevity plans to take as we look to continue developing in the hemp-derived CBD industry. Right now, that industry is expanding so quickly that companies are struggling to keep up with demand. So acquiring the production capabilities of Khrysos, and adapting a creative model that allows us to upscale the usage of its technologies across our own properties and the properties of our partners — I feel — really stakes our claim within the industry at large."
An Industry Expanding
Youngevity's work represents only one part of a broader wave of expansion for the cannabis industry.
Canopy Growth Corporation (NYSE:CGC - News) has acquired Storz & Bickel, a vaporizer design and manufacturing company with a 22-year track record of breakthrough innovations. The move brings together the world's most technologically advanced vaporizer company and world's leading cannabis company and will enhance Canopy Growth's product device development capabilities. Canopy Growth is dedicated to advancing the world's perception of cannabis by focusing on research, product development, and innovative production capabilities by offering brands consumers can trust.
In January, Aurora Cannabis Inc. (NYSE:ACB - News) signed a letter of intent to acquire Whistler Medical Marijuana Corporation in an all-share transaction valued at up to approximately $175 million. Whistler has developed one of Canada's most iconic cannabis brands, built on quality, award-winning organic certified BC bud. The Transaction is expected to provide Aurora with a premium and differentiated organic certified product suite, expanding both its medical and adult-use offerings, and reinforcing Aurora's presence in the well-established west coast cannabis market.
In one of the largest cannabis acquisitions in history, MedMen Enterprises Inc. (OTCQX:MMNFF - News) entered an agreement for the acquisition of Chicago-based PharmaCann, one of the largest medical cannabis providers in the U.S. The move is will permit the company to operate 76 retail stores and 16 cultivation and production facilities in 12 states. Through the transaction, MedMen is anticipated to add licenses in Illinois, New York, Pennsylvania, Maryland, Massachusetts, Ohio, Virginia and Michigan.
A world leader in the development of cannabis-related medicine, GW Pharmaceuticals Plc (NASDAQ:GWPH - News) has built a strong research program and developed remarkable manufacturing expertise. With its public-offering expansion, the already-strong company becomes a major presence in one of the most attractive investment sectors. This funding allows GW Pharmaceuticals to keep growing its impressive research and production work.
With these strategic moves made by companies intent on leveraging their positions in the growing cannabis market, the time appears ripe for interested investors to take a closer look at the industry's potential.
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