“More” is not always “better”

Observations of individual US cannabis companies suggest that specialized operations and narrow geographic coverage of operations during the coronavirus pandemic are better able to handle the crisis than multi-national corporations struggling with falling demand and capital constraints.

Companies that manufacture, process and market medical cannabis in the United States are already realizing that “more” is not necessarily “better” in order to survive a pandemic. It is the operators with narrow specializations in the hemp business that are good at dealing with industry problems. 

Observations of individual US cannabis companies suggest that specialized operations and narrow geographic coverage of operations during the coronavirus pandemic are better able to handle the crisis than multi-national corporations struggling with falling demand and capital constraints. 2020 is seeing a paradigm shift in this direction from what was seen a few years ago, when an abundance of demand pushed the US cannabis growers to expand their presence across the country based on a rush to "take over territory" strategy. , as a result of which many until recently “heavyweights of the hemp market” in 2020 are experiencing serious problems due to the fact that the forces and means of their business are overly dispersed.

The current shake-up in the American cannabis market exposes the risks of an “omnivorous” strategy, including a patchwork quilt of regulatory frameworks across the United States and high promotion, development and processing costs across the country. For companies operating in the securities market, this becomes an even more serious problem, since the value of shares during the coronavirus pandemic remains well below their maximums, and consumers are switching from purchasing expensive hemp drugs to buying cheaper, but no less effective flowers of technical hemp. focus.

In general, shares of companies specializing in the cultivation, processing and sale of medical cannabis this year have lost about 25% of their value despite the increase in the total value of the stock index. A vivid negative example among the largest operating companies that have expanded their activities to several states at once are MedMen Enterprises Inc., which has lost about 70% of its value in 2020 alone, as well as Harvest Health & Recreation Inc., whose securities price has decreased by 58%. 

Acreage Holdings Inc., which operates in 15 states, reported a net loss of $ 37.2 million in the second quarter of 2020 and said it is forced to sell a dispensary in Maryland to improve profitability for the entire company. Those. significant fragmentation of the company's activities in a large number of US states led to low income during the crisis and, accordingly, to the need to get rid of non-core loss-making assets. One of the most vivid examples of ill-considered actions in the market is the activity of MedMen, which in 2018 rapidly expanded its hemp assets to Arizona, Northern California, Virginia, and Illinois, but now it is forced to sell them even in Virginia on the eve of the official "launch" of the program legal use of medical cannabis precisely in this administrative-territorial unit of the United States.

At the same time, stocks of highly specialized companies in the modern grower sector, such as Green Thumb Industries Inc., are up 51% this year alone. Trulieve, which grew 90% in value over the same period, is another example of how a narrow focus can pay off. The company boosted sales and Ebitda last quarter, opening five new stores in Florida, where it already owns about half of the market. "Trulieve", which even during the coronavirus period increases the volume of its operations, is only now considering entering the market for several more US states. Specifically, Trulieve CEO Kim Rivers states that “From the outset, we decided to focus on depth of customer service processes. This has resulted in a loyal and consistent customer base that has become solid over time, and fewer branches have also helped the company focus on financial performance. ”

The Green Thumb company concentrated about 60% of its sales in the states of Illinois and Pennsylvania. The leadership of the aforementioned structure made a bid to legalize the use of cannabis for recreational purposes in Illinois and did not fail. At the moment, given the underpopulation of the Illinois market with recreational cannabis, it can be argued that the operational activity of “Green Thumb” in the short term will only intensify.

Commentary of experts of the Association "Ukrainian technical hemp"

In the national market, as well as in the United States, certain trends of the paradigm shift in the market development are visible. The leaders of the company working in the market understand that in addition to the fact that it is necessary to establish the processing of hemp raw materials and produce products with the final added value, it is necessary to create capacities that allow the complex use of all the constituent plants. Taking into account the increasing competition in the national hemp market, a number of companies have decided on promising niches for themselves in which they feel as confident as possible and expand their presence in a particular market segment, without trying to “embrace the immense”. 

During the second day of training for students of the " Hemp University " within the framework of the traditionally held " Practical part ", a number of members of the Association "Ukrainian Technical Hemp", who have achieved significant success in specific niches of modern cannabis growing in our country, will share their experience, and also reveal the secrets of success in individual market sectors of the most highly profitable agricultural crop.