Poor Investment Decisions are Crippling the Cannabis Industry
Overinvestment in growers has created oversupply problems for the cannabis sector and companies like GreenStar Biosciences (CSE: GSTR) are looking to correct the course.
The demand for cannabis has never been higher. As legalization rolls out across North America, CBD products and recreational marijuana are leaving dispensary shelves the moment they arrive. While investors rush to buy stocks of the biggest growing companies, the market might be heading towards a rocky shores.
From clandestine operations to massive greenhouses
Since we’re experiencing the very beginning of the cannabis revolution in Northern America, sometimes instincts might play a bigger part in business decisions concerning marijuana, than well-thought data. American farmers, swayed by the promise of selling hemp for prices up to 60x higher than in case of other cash crops, have planted roughly 400,000 acres of land with it. Cultivating hemp for later CBD extraction seems like a lucrative deal, but the 362% increase in land licensed for hemp cultivation has little regard for the demand, which might be even 8x less than the supply.
Over the Canadian border, cannabis companies try to outrun each other by ramping their growing output and building their brands as the biggest growers. That certainly draws investors’ attention and gives a promise for profits, but since there are so many eager to make money on the new market, the supply might be going through the roof. Several estimates put countrywide demand for various forms of marijuana between 655,000 and 800,000 kilograms annually. The combined output of Canopy Growth (CGC), Aurora Cannabis (ACB), Tilray Inc. (TLRY), Cronos Group (CRON), and several other top growers for 2020 is predicted to reach numbers up to 1,500,000 kilograms.
And it’s cannabis that Canadians have to consume mostly by themselves. Current laws are strict about exporting pot over the borders, though Canada is among a few countries that can ship marijuana out to states which legalized medical cannabis. Germany, Croatia, the Czech Republic, Argentina, Chile, Peru, and Australia – their biggest clients demand sums into less than 200,000 kilograms per year With ambitious plans for expansion and significant investments to back them up, growers are going to flood the market with a product nobody will be able to buy. And that could strangle the market in its cradle.
Cultivation is just the beginning
The numbers above indicate that there is currently a severe overinvestment of cannabis cultivation, both in Canada and the U.S. Most of the big pot stocks are cultivators, which means that investors are loading their money into growing and selling an agricultural crop. And like with any commodity, they cannot compete like brands or other products – it’s only about the supply and demand. When the supply overshoots the market expectations, prices come tumbling down. And that’s bad for business.
The Canadian market is supposed to experience a supply glut by 2021, but small-time growers are already experiencing less-than-expected profits. Back in 2013, when Colorado has first legalized recreational cannabis, a pound of marijuana in wholesale was around $3,500. This year it’s roughly a $1000, and with more licenses issued, it’s sure to plummet even more.
Even though cannabis seems to be a wise investment, much of the demand has been estimated upon sentiments than calculations. It applies to both growers and investors, who are going to be most hurt by the overinvestment in the cultivation sector. Not all of the cannabis industry is in danger though, as those investors who have placed their bets on companies processing the dry flower, might be in a much better position.
Mitigating risks through verticals
When the supply overshoot becomes a fact, more investments will focus on various stages of processing cannabis, than growing itself. The companies that operate in this sector are up for the real gold, as they will be the ones that will have to ramp up their scale to meet the upcoming demand.
This need, along with the consequences of overinvestment in growing, has been spotted by GreenStar Biosciences (CSE: GSTR), which decided to focus on investing in cannabis companies that would encompass the whole processing part of a plant’s life. By entering a less mainstream sector for investments, GreenStar is building a portfolio of cannabis companies that will work in synergy for mutual benefit, profiting the firm and shareholders alike.
It seems that successful investments in cannabis shouldn’t be oriented only on growing, which is inevitably going to capsize more than one business. A holistic approach usually proves to be the best strategy, and that’s why GreenStar is focused on identification and selection of promising cannabis stocks that will build a portfolio addressing all the aspects of the cannabis sector.
The pot business incubator
By leveraging market expertise and knowledge of their team of seasoned investment gurus and cannabis specialists, GreenStar Biosciences became effective in the identification of promising and overseen cannabis ventures that are bound to bring a profit. By investing in them and stimulating their growth, the company provides a single point of entry into the cannabis industry for all investors willing to take a calculated approach.
GreenStar proves that it can successfully expand even a cultivation business, taking the revenue of Cowlitz County Cannabis Cultivation Inc. in Washington from $600,000 to more than $14 million within five years. Experiences of both the Canadian and American market sum into that impressive achievement, as well as the innovations of particular tennant companies that can be shared among each other for increased effectiveness and synergy.
Market experts argue that even in the face of cultivation overinvestment, the cannabis industry is well on its way towards becoming a $146.4 billion market within the next few years. Due to dangers associated with investing only in growing companies, it seems that choosing a cannabis investment company that targets all of the relevant industry sectors is the best way to mitigate risks and maximise profits on the market. In this light, GreenStar Biosciences appears to be perfectly positioned to become a passport to the world of successful cannabis investments.