Vertical Integration Offers Profit Potential within Growing Cannabis Industry

CannabisNewsWire Editorial Coverage: As the cannabis industry continues its impressive growth, acquisitions are leading to greater vertical integration.

Companies within the cannabis sector are acquiring other organizations to benefit from valuable specialist knowledge and skills.
Such deals allow vertically integrated value chains, as have also been applied in industries such as coffee production.
This comes amid wider growth in the sector, which is drawing substantial outside investment.

Youngevity International Inc. (NASDAQ: YGYI) (YGYI Profile) is following the vertically integrated model, having recently acquired a company specializing in cannabis processing machinery. Tilray Inc. (NASDAQ: TLRY) is expanding its Canadian production facilities through the acquisition of another grower. Budweiser brewer Anheuser-Busch Inbev (NYSE: BUD) (OTC: BUDFF) has partnered with Tilray to produce cannabis-infused drinks. In addition, tobacco companies are investing in the sector, providing extra funds for companies such as Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON). Specialist companies such as cannabis real estate finance company Innovative Industrial Properties Inc. (NYSE: IIPR) are also looking for entry positions in the industry.

To view an infographic of this editorial, click here.

Cannabis Companies Turn to Vertical Integration

As the global cannabis industry continues to grow — with North America taking a leading role — companies are eager to find ways to improve their productivity and stand out from the pack. 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. So, what can give a company an edge?

Many are turning to vertical integration. By bringing together production, processing and distribution, companies can cut costs, improve efficiency and ensure quality control. It’s a strategy that has worked well in other parts of the economy, but can it work for cannabis?

Acquisitions for Growth

This all-under-one-roof strategy is definitely one that the management at Youngevity International, Inc. (NASDAQ: YGYI) believes in. A leading omni-directional lifestyle company, Youngevity has 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, CBD is not psychoactive and does not deliver the highs or mental impairment that comes with THC. In addition, recent research has indicated that CBD could have a wide range of beneficial effects for health and well-being, 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 entered this market last summer, with the launch of its Hemp FX product line, which includes products designed to soothe muscle pain and help consumers relax. This has provided a new product offering for a company that has already seen success with its hybrid model of direct selling, social selling and e-commerce.

To expand upon this opportunity, Youngevity has recently acquired Khrysos Global, a large hemp and CBD machine manufacturing company. Khrysos’s proprietary technology has been developed specifically to extract active ingredients from hemp and cannabis in order to provide the best possible yields from crops. The company also provides planning and consulting for cannabis companies looking to make use of technology in 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 acquisition is a natural move for Youngevity, not just because of the company’s interest in the hemp market but because of its established business model. This model, which the company refers to as “field to finish,” has been tested and proven through its CLR Roasters subsidiary.

CLR is invested in every stage in the coffee production process, from farming and green coffee distribution to roasting and sales of branded goods. Its vertically integrated model includes a plantation and dry-roasting facility in Nicaragua, established U.S. facilities and sales networks, and its own coffee brand. This comprehensive approach allows the company to control the entire process of coffee production from the field to the consumer’s cup, not only providing profit at every stage but ensuring the quality and the reputation of the company’s own products.

The acquisition of Khrysos and a 20 percent ownership stake in the Carolina Cannabis Company will allow Youngevity to establish a similar model in the cannabis sector. By taking ownership of the production, processing, branding and sales of CBD products, the company plans to profit from every stage in the process and ensure that its products are produced both efficiently and to the highest standards.

The acquisition brings the skills and experience of Khrysos’s technical and managerial staff in house at Youngevity, another critical advantage. The cannabis sector is still in its early days, and companies are regularly refining their processes the industry continues to evolve and grow. Having specialist knowledge about the equipment used in processing cannabis can only help the Youngevity optimize its processing systems, ensuring efficient manufacturing and a smooth supply chain.

Like any business savvy acquisition, this deal stands to benefit both the purchasing company and the one it is taking over. Youngevity’s scale and experience in reaching customers is designed to allow Khrysos’s technology to reach a wider market. Being part of a larger company provides an opportunity for Khrysos to expand, 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.

Canadian cannabis company Tilray Inc. (NASDAQ: TLRY) is among those using acquisitions to fuel growth. Tilray recently announced the pending acquisition of Natura Natural Holdings Inc., another Canadian company. Valued at C$70 million, this deal will increase Tilray’s growing space by 662,000 square feet, a significant expansion in an industry based around self-contained indoor agricultural facilities. An innovator in the cultivation, production and distribution of cannabis products, Tilray has has also established subsidiaries and affiliates in Europe, the Pacific, and Latin America, the latter through the recent establishment of Tilray Latin America SpA.

Like Youngevity, other companies with experience outside cannabis are now making moves into the sector. Anheuser-Busch Inbev (NYSE: BUD) (OTC: BUDFF), the brewers of the iconic Budweiser beer, is the latest in a series of beverage companies to make this move. The company has created a partnership with Tilray to explore the potential of cannabis and CBD-infused drinks. It’s a substantial deal, with each company planning to invest $50 million in the venture, and though it will initially be limited to the Canadian market, if the venture proves successful, the potential to grow in the Unites States is significant.

Tobacco companies are an obvious fit for the cannabis sector, which could provide them with an alternative revenue stream as health-conscious consumers turn away from tobacco. Altria, the company behind such famous brands as Marlboro and Benson & Hedges, has invested C$2.4 billion in Canadian cannabis company Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON). Canada is a good starting place for a company entering the cannabis market, thanks to the legalization of recreational cannabis in the country last October, but the investment in Cronos represents a broader opportunity. With business in Latin America, Europe, Australia and Israel, Cronos will provide Altria with access to a global cannabis market.

As well as attracting big players from the wider economy, the growth of the cannabis industry has supported the emergence of specialist companies within the sector, such as Innovative Industrial Properties Inc. (NYSE: IIPR). Founded in December 2016, Innovative Industrial Properties is a pioneering real estate investment trust that provides real estate capital for the medical cannabis industry. The illegality of cannabis at a federal level in the United States has made it hard for companies to acquire regular sources of funding, such as bank loans when buying property for cannabis production. There is therefore a substantial market for the company’s funding, and an opportunity for both sides to profit from such finance.

The growing cannabis market has produced companies specializing in many different areas. By bringing these specialties together, vertically integrated companies have a chance to increase profits and profit from this remarkable growth.

For more information on Youngevity, visit Youngevity International, Inc. (NASDAQ: YGYI)

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Direct Selling Companies Prove Attractive for CBD Market, Drawing Large Non-Endemic Cannabis Industry Partners

CannabisNewsWire Editorial Coverage: With experts such as the Brightfield Group predicting the hemp-derived CBD (cannabidiol) market will reach $22 billion by 2022, major industry players such as Anheuser-Busch are seeing value and viability in the direct selling approach to selling CBD products.

With a predicted 130 percent compound annual growth rate (CAGR) over the next three years, the hemp-derived CBD industry looks primed to explode.
The direct selling approach to selling CBD products pioneered by brands such as Youngevity International is attracting the interest of large-scale companies.
Given new medical studies proving the efficacy of daily CBD intake, the market appears ripe for companies with vested interests in other lifestyle markets.

Following the passing of the groundbreaking 2018 U.S. Farm Bill that legalized the industrial cultivation of hemp nationally, scores of companies not endemic to the cannabis industry are looking for ways to enter the booming CBD market. Partnerships and acquisitions look to be one of the most promising strategies, with many savvy companies utilizing the direct selling route originated by brands such as Youngevity International Inc. (NASDAQ: YGYI) (YGYI Profile), a leading omni-direct lifestyle company. New Age Beverages Corporation (NASDAQ: NBEV) recently merged with a direct selling company to distribute its CBD products, while beer giant Constellation Brands Inc. (NYSE: STZ) poured a $4 billion investment into Canadian cannabis company Canopy Growth Corporation (NYSE: CGC) (TSX: WEED). Anheuser-Busch InBev (NYSE: BUD) (OTC: BUDFF) also partnered with a leading Canadian cannabis producer to research cannabis-infused drinks and owns 20 percent of Icelandic Water Holdings, which recently entered into an exclusive joint-marketing/development agreement with Youngevity to develop and sell CBD-infused products.

To view an infographic of this editorial, click here.

A Market Primed to Skyrocket

The recent deregulation, legalization and proliferation of the cannabis industries in the United States and Canada made 2018 a landmark year for those industries, creating an ideal scenario for an astronomical growth rate. Canada’s recent move to legalize recreational marijuana and the United States’ decision to legalize the industrial cultivation of hemp nationwide has experts forecasting the global cannabis industry to exceed $39 billion by 2023 and possibly exceed $95 billion by 2026.

Within that market, the hemp-derived CBD segment will likely grow at an even faster rate, with that growth buoyed by the fact that it doesn’t have to pass any state legalization hurdles across the United States. Brightfield Group expects the hemp-CBD industry’s growth to outpace the rest of the cannabis industry combined, and Hemp Business Journal estimates the hemp market to grow around 700 percent by 2020. With the meteoric growth predicted, companies such as Youngevity International Inc. (NASDAQ: YGYI), which already have established direct-selling channels that can nimbly adapt and upscale marketing, production, and delivery, could see a boon in business.

Direct Selling Method Attracting Corporate Giants

Given the nascent nature of the cannabis industry, many consumers are just learning about CBD products, meaning that growth within the industry is happening in the most organic fashion possible: word-of-mouth marketing. Brightfield Group notes that more than 50 percent of CBD consumers in all U.S. regions first learned about CBD from friends or family, which makes direct selling companies a “fantastic fit” for the CBD industry.

Studies by Direct Selling News show that direct selling companies already lead the global market in sales of CBD products with more than $300 million in annual sales. Therefore, the interest of larger, non-endemic companies in the direct selling model of brands such as Youngevity only makes sense and may signal that, as the cannabis market continues its stratospheric growth, so too will the direct selling sector within the industry.

Increased Medical Studies Cause Increased Interest in CBD

One of the main driving forces behind the rapid increase in popularity in CBD globally is increased awareness by consumers of the widespread medical uses of CBD. Research has shown that CBD, particularly when used daily, can help treat and prevent symptoms of Alzheimer’s disease, chronic pain, anxiety, insomnia, arthritis, epilepsy and a slew of other ailments.

Given that, companies such as Youngevity — which has the ability to deliver CBD in convenient packaging and applications for daily use — may have an upper leg when it comes to profiting off the growing trend. Knowing that, it makes sense that Youngevity recently announced an exclusive joint-marketing agreement with Icelandic Water Holdings, a company in which Anheuser-Busch has 20 percent ownership.

Youngevity and Icelandic plan to develop and sell CBD-infused dietary supplements, children’s drinks, pet products, and coffee products via Youngevity’s direct selling platform. This move seems to validate not only the viability of the direct selling model in selling CBD products but also the potential windfall businesses already established in other lifestyle industries may experience by integrating into the CBD sector.

Lifestyle Direct Selling Companies Poised to Capitalize on Expanding CBD Market

Globally, the direct selling market is growing. Research by Euromonitor shows that the direct selling market is expected to reach $163 billion by 2020, with the largest portion of that business coming from the wellness industry. Given the aforementioned promise of the CBD market in the direct selling industry, along with the expected continual growth of the direct selling industry at large, it only makes sense that direct selling companies poised at the intersection of the cannabis, wellness and other lifestyle industries may be best suited to capitalize on the inclusion of CBD in other industries.

Youngevity could be an ideal example of just such a company. The direct selling expert has already established a sterling presence in the coffee industry through its wholly-owned subsidiary CLR Roasters, a proven farm-to-cup pipeline that can be quickly and easily adapted for hemp cultivation. Its holdings in other markets ripe for CBD inclusion such as the beauty and wellness industries, Youngevity may be best positioned to harness the incredible growth in the CBD market, particularly via large-scale corporate partnerships and mergers.

CBD Market Continues to Draw Non-Endemic Interest as Direct Selling Flourishes

New Age Beverages (NASDAQ: NBEV) recently merged with the direct selling company Morinda with the stated intent to sell CBD products through Morinda’s direct selling model. This appears to be a solid endorsement of the viability of direct selling in selling CBD. Created in 2016, New Age has developed a brand portfolio competing in the highest growth segments of the beverage industry and has created the only one-stop-shop of healthy beverages. By combining with Morinda, New Age plans to rapidly grow its brands by adding a direct-to-consumer infrastructure and market access to 60 countries around the world.

Constellation Brands (NYSE: STZ) has similarly shown that the beer industry is keenly interested in the CBD market. It recently invested $4 billion in Canadian cannabis producer Canopy Growth (NYSE: CGC) (TSX: WEED), telling U.S. lawmakers it was “extremely bullish, if not more bullish” on the prospect of selling CBD-infused drinks in the United States. following the nationwide legalization of industrial hemp cultivation via the 2018 U.S. Farm Bill. Given its positioning as a premium beer, wine, and spirits company, Constellation’s interest in the market may signal that other large corporations in the premium beverage market may see viability in CBD.

Canopy Growth was the first cannabis company in North America to be publicly traded, then followed that milestone by becoming the first North American cannabis company to diversify its platform to include both greenhouse and indoor growing, to acquire a major competitor and to be listed on the Toronto Stock Exchange. Through its subsidiary, Canopy was also the first cannabis company to introduce the now-standard concept of compassionate pricing, making medical cannabis more affordable for patients.

Anheuser-Busch Inbev (NYSE: BUD) (OTC: BUDFF), the massive brewer that makes Budweiser Bud Light, and more than 500 other beer brands, has shown a keen interest in the CBD market. The company recently partnered in a $100 million joint venture with Tilray Inc., a leading Canadian cannabis company, to research cannabis-infused drinks for the Canadian market. Currently the partnership is limited to Canada, with the companies making decisions regarding the commercialization of the beverages in the future. Anheuser-Busch said it would participate in the project through its subsidiary Labatt Breweries of Canada.

The recent nationwide legalization of hemp cultivation in the United States, as well as the nationwide cannabis legalization in Canada, has created a rapidly expanding CBD market. With the proven success of direct selling companies in selling these products, it seems the direct selling industry will continue to help propel the CBD market as large-scale, non-endemic companies look for ways to gain entry into the market.