Pick-and-Shovel Leaders for the Cannabis Boom Ahead

The hemp space is set for enormous growth in simple terms over the next two decades.

That point is universally agreed upon by analysts. But the opportunity may be more complicated than it appears on its face for investors looking to take maximum advantage of this growth curve as the legal marketplace expands with widening mainstream adoption.

Companies that offer broad solutions through products and services that make life better for producers or consumers – otherwise known as pick-and-shovel stocks – could represent a less risky alternative for investors than simply investing in producers or retailers in the space.

The upside in the overall cannabis and hemp market is uncontroversial. But one can plan on regulatory pitfalls, intense competition, regional variations, and other niche-level variables.

However, companies that provide ancillary resources for the industry as a whole could be advantageous in terms of risk-reward ratio.

With that in mind, we take a look here at several such names in the space, including GrowGeneration Corp (OTCMKTS:GRWG), KushCo Holdings Inc (OTCMKTS:KSHB), Epazz Inc (OTCMKTS:EPAZ), and Innovative Industrial Properties (NYSE:IIPR).

 

GrowGeneration Corp (OTCMKTS:GRWG) trumpets itself as a company that, through its subsidiaries, owns and operates retail hydroponic and organic gardening stores in the United States. The company has been growing rapidly through a series of key strategic moves.

GrowGen carries and sells thousands of products, including organic nutrients and soils, advanced lighting technology and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.

GRWG recently announced its acquisition of 55 Hydroponics, a hydroponic and organic fertilizer superstore located in Santa Ana, California. Founded in 2010 by Michael Dominguez, 55 Hydroponics is the dominant hydroponics supplier in Orange County, with annual revenues approaching $10 million.

According to the release, the acquisition brings the number of GrowGen locations in California, the country’s largest legal cannabis market, to 18, with 9 locations in Southern California. When added to the recently announced leased locations in the Southern California market, GrowGen will operate close to 800,000 square feet of retail and warehouse space across 53 locations nationwide, with 11 of those locations in the important Southern California market.

The stock has suffered a bit of late, with shares of GRWG taking a hit in recent action, down about -8% over the past week.

GrowGeneration pulled in sales of $61.9M in its last reported quarterly financials, representing top line growth of 143.9%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($177.9M against $27.3M).

 

KushCo Holdings Inc (OTCMKTS:KSHB) casts itself as a premier provider of ancillary products and services to the legal cannabis and CBD industries. KushCo’s subsidiaries and brands provide product quality, exceptional customer service, compliance knowledge and a local presence in serving its diverse customer base, which consists of leading multi-state-operators (MSOs), licensed producers (LPs), and brands.

Founded in 2010, KushCo has now sold more than 1 billion units to growers, brand owners, processors and producers across North America, South America, and Europe, specializing in child-resistant compatible and fully customizable packaging, exclusive vape hardware and technology, and complementary solvents and natural products.

KSHB recently announced the enterprise leadership team that will helm the proposed combined Greenlane and KushCo businesses following the consummation of the proposed merger.

As previously announced, Nick Kovacevich will lead the combined company as Chief Executive Officer. Greenlane’s Bill Mote will serve as Chief Financial Officer, with Greenlane Co-founder Aaron LoCascio serving as President and Greenlane Co-founder Adam Schoenfeld serving as Chief Strategy Officer.

Even in light of this news, KSHB has had a rough past week of trading action, with shares sinking something like -6% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way.

KushCo generated sales of $32.9M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 22.9% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($35M against $49.1M, respectively).

 

Epazz Inc (OTCMKTS:EPAZ) promulgates itself as a leading provider of drone technology, blockchain mobile apps, and cloud-based business software solutions.

Its holding, ZenaTech Inc., is a drone-smart hemp farming solution that monitors the plant life cycle from growth to sale. In accordance with government regulations for quality assurance measures, ZenaPay tracks, monitors and calculates plant life cycles in real time, providing accurate data extraction for management and auditing reports and certifying the plant life cycle from start to its targeted purpose.

EPAZ most recently announced that ZenaTech is beta testing the ZenaDrone 1000 in Ireland this week. The drone will power next-generation farms and change the way farms do business.

According to the release, the ZenaDrone 1000 is the first of many new drone technologies that ZenaTech is developing. The company is working on a mobile power station to recharge drones that are thousands of feet from a power outlet, which is part of the company’s charging-pad technology that allows for wireless charging. The company will release details in the coming weeks.

Dr. Shaun Passley, CEO of Epazz and ZenaPay, said, “The charging pad is key to autonomous drone activities. Now we are extending our technology for a mobile power station. The mobile power station will extend the range of the ZenaDrone 1000, allowing it to cover more ground during a period of time.”

Epazz shares have doubled in the past 5 months. The stock has pulled back recently, but maintains its rally in terms of the logarithmic trendline off the lows put in place early last year well under the penny level.

 

Innovative Industrial Properties Inc (NYSE:IIPR) is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.

The company touts itself as the first and only real estate company on the New York Stock Exchange focused on the regulated U.S. cannabis industry.

IIPR recently announced that it closed on the acquisition of a property in Alachua, Florida, which comprises approximately 295,000 square feet of industrial space.

“We are thrilled to form our new real estate partnership with Harvest,” said Paul Smithers, President and Chief Executive Officer of IIP. “Harvest has established a tremendous footprint in its four core markets of Arizona, Florida, Maryland and Pennsylvania, and continues to execute strongly on its targeted growth and expansion in those markets. We look forward to working closely with Harvest to complete the build out of additional enhancements and productive capacity at the Alachua facility, which will enable their continued expansion in Florida to meet the tremendous demand from the over 460,000 registered patients in the state, the largest registered patient population of the 35 medical-use cannabis programs in the United States.”

Even in light of this news, IIPR has had a rough past week of trading action, with shares sinking something like -6% in that time. That said, chart support is nearby, and we may be in the process of constructing a nice setup for some movement back the other way.

Innovative Industrial Properties managed to rope in revenues totaling $37.1M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 109.9%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($745.3M against $0).

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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