What is Ancillary marijuana company?
Companies that profit from marijuana without touching the plant.
The ancillary marijuana companies are growing as more states legalize the use of cannabis for either medicinal or recreational purposes. Many companies involved in the marijuana industry never touch the plant. Instead, these businesses focus on software, supply chain and packaging, among other aspects. “As the medical marijuana market turns over to adult use, there will be more packaging and cultivation required and that is going to foster more demand for ancillary products like lighting, soil and packaging,” says Brett Hundley, a senior equity research analyst at investment bank Seaport Global Holdings. “We think the ancillary market is set for continued growth ahead.” Here are six ancillary marijuana companies for investors to consider.
- KushCo produces packaging and supplies, and its 2019 sales are estimated to increase to $140 to $150 million, Hundley says. As the cannabis industry grows, it seeks efficiency, not the mom-and-pop stores in the packaging industry, he adds. “The company is now starting to see the initial benefits of scale, and we are excited about the forward opportunity as additional markets across North America turn to value-added recreational products, which require more packaging and innovative solutions,” he says. All marijuana companies need packaging for compliance and Kushco has proven that it can service its ever expanding niche, says Jason Spatafora, co-founder of MarijuanaStocks.com and a Miami-based trader and investor.
- A Toronto-based company, Tinley Beverage manufactures hemp extract cannabinoid products that are sold in the U.S. The company makes alcohol-free, cannabis-infused beverages for the legal market in California. Tinley plans to complete its flagship bottling plant in Long Beach, California by the end of the second quarter of 2019. “This is the only beverage play to have actual beverages and a bottling plant to go with it,” says Chris Parry, a Canadian-based consultant in technology, health care and marijuana marketing. Naysayers were bearish on Tinley “for having taken a few years to get products out and changing formulations, but that’s what you do when you’re building a bottling line and products that will be more than dispensary oddities,” he says.
- Plus Products, a San Mateo, California-based company, is one of the best-selling edible brands in the Golden State. The company received a strategic investment from Tiger Global Management, one of the largest hedge funds to enter the cannabis sector. Plus followed the same strategy as Tinley Beverage and emerged as the dominant manufacturer of edibles in California, which is no small feat, Parry says. “They could have put out a hundred [stock keeping units] and flooded the market and maybe got some sales numbers up in the short term, but they’re focused on getting it right.”
- Origin House, a Canadian branding and distribution company, is set to be acquired by Cresco Labs (CRLBF), pending a review by U.S. antitrust authorities. The company is known for its strategic moves, Parry says. “Origin House was always a year ahead of everyone else,” he says. “When others were grabbing licenses, they were extracting. When others were chasing extractions, they were buying labs and value added products and brands that people liked.” The company has flipped assets for a profit and built others – beating the trends. “That they’re now being acquired doesn’t mean they cease to be – it means they’re bigger and going to be much more important as Cresco Labs,” Parry says.
- Helix TCS is a Denver-based platform for cannabis producers and distributors for supply chain management, compliance and asset protection. The company reported first-quarter revenues rose by 199% to $3.4 million and gross profit for the quarter was $1.45 million, a 43% margin. Helix was a first mover on the seed-to-sale opportunity and has a massive presence across the U.S., says Michael Berger, founder of Technical420. “The company’s BioTrack asset is being used to track the sale of cannabis by businesses,” he says. “We believe that this asset is unique and provides a major differentiator for the marijuana business. Over the next year, we expect to see the company further expand its reach.”
- Enwave, a Vancouver-based advanced technology company, developed a dehydration technology for the food, cannabis and pharmaceutical industries via a licensing royalty model. For the second quarter, the company reported 8.8 million Canadian dollars ($6.5 million) in revenue. “We are headed in the right direction driven by a few key stimulants,” CEO Brent Charleton told Proactive Investor in a video interview. The company’s proprietary and patented method to dehydrate organic materials is called Radiant Energy Vacuum. The company recently signed a royalty-bearing commercial license agreement with Aurora Cannabis (ACB) for the exclusive rights to Enwave’s Radiant Energy Vacuum drying technology for cannabis materials in the European Union, excluding Portugal. Aurora has also made a $10 million strategic equity investment in Enwave.