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Although the United States marijuana market is attractive, companies that touch the actual plant are under the microscope.
Although recent studies have shown that marijuana has medical benefits, it is still illegal at the Federal level and the new White House administration has not made the situation any easier.
Banks have been closing marijuana accounts left and right, and companies that touch the plant are having trouble depositing their cash. When it comes to publicly traded marijuana companies based in the United States, we prefer companies that do not touch the plant and have highlighted three ancillary companies that investors should be watching.
GrowGeneration: Expect to See Continued Growth
GrowGeneration Corp. (GRWG) is one of the largest specialty retail hydroponic and organic gardening stores in the United States. The company has 13 locations in Colorado, California, Washington and Nevada, and sells to commercial and home cannabis growers.
The company is utilizing a growth strategy focused on both organic and inorganic initiatives. We are favorable on this strategy and the recent execution and will monitor how these initiatives benefited the top- and bottom-line. In late May, GrowGeneration acquired Seattle Hydro Spot to serve as a retail and warehouse location that services a growing number of both commercial and home growers in the Northwest market. Seattle Hydro Spot was previously working with 50 of the approximately 2,000 commercial growers in the Northwest.
Management expects Washington state to be one of the fastest growing markets over next few years and believes this acquisition makes them a leader in the Northwest region. We are favorable on GrowGeneration due to its recent execution, its footprint of hydroponic stores, and its growth opportunity based on its geographic diversity.
MassRoots: Improves Platform and Completes Acquisition
MassRoots (MSRT) has come off its July lows after the company completed the acquisition of Odava for $1.75 million in an essentially all-stock transaction (paid $35,000 in cash). Odava was founded in 2016 to provide dispensaries with compliant point-of-sale and inventory management software for cannabis dispensaries and growers. Odava’s system is priced on a per-transaction basis.
Odava has a product for both the retail and the cultivation market. The retail product is a point-of-sale solution that tracks the sale of both recreational and medical marijuana according to the laws in Oregon, Alaska, and Colorado (plans to enter California). The cultivation product is an inventory tracking system that provides compliance, bank and retail integration among other capabilities.
MassRoots continues to focus on improving and refining its product to be in-line with what the market needs and we are favorable on the Odava acquisition. The company has been executing on cost cutting initiatives and we continue to remain favorable on the long-term outlook.
Kush Bottles: Executing on All Cylinders
Kush Bottles (KSHB) markets and sells packaging products and solutions to clients in the medical and recreational cannabis industry. The company has continued to execute and recently added two new distribution partners in Hawaii and Puerto Rico.
Kush Bottles recently reported third quarter earnings and recorded more than 100% revenue growth when compared to the prior year’s period. This growth was the result of organic and inorganic growth initiative’s, specifically the acquisition of CMP Wellness, a California-based distributor of vaporizers, cartridges and accessories, as well as the acquisition of the Roll-Uh-Bowl.com online distribution platform. Going forward, the company is focused on leveraging cross-selling opportunities and increasing market share through these acquisitions.
We are favorable on Kush Bottles and consider it to be one of the top ancillary cannabis investment opportunities. The company is levered to an emerging global cannabis market and expect to see continued growth as it penetrates new markets and capitalizes on new opportunities.
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