In the past few years many large corporations have begun to position themselves for the burgeoning cannabis industry. Berkshire Hathaway, Scotts Miracle-Gro, Waters, and Xerox are just some of the latest corporations to participate in the ‘Green Rush.’ While, these corporations haven’t invested in the actual growing or selling of the plant, their interest should inspire investors and further validate the fact that these and many other Fortune 500 companies see the enormous potential for the industry.
Back in 2014, Bloomberg ran a story about Cubic Designs, a Berkshire Hathaway subsidiary looking to profit from cannabis cultivation. “Cubic Designs Inc., a unit of Berkshire’s MiTek business that makes platforms for maximizing usable floor space in warehouses, sent about 1,000 fliers to weed dispensaries in recent weeks, offering to help growers expand the number of plants they cultivate.” While Cubic Designs offers warehouses added space, the key thing to hone in on is the fact that they are actively targeting cannabis businesses. Just last week, Cubic Designs had a booth at the Marijuana Business Conference and Expo in Orlando.
Scotts Miracle Gro is the world’s largest marketer of branded consumer lawn and garden products. The CEO of the company is now Jim Hagedorn, the son of the founder Horace Hagedorn. In a Denver Post article, Jim recalls growing up and watching the news and seeing marijuana drug busts and seeing Scotts Miracle-Gro products in the background. Looking for new opportunities to grow Scotts Miracle Gro, Jim began to look at acquisitions that could fuel the top and bottom line for Scotts. As Jim began sourcing businesses, he started to realize just how big the cannabis industry was getting and how most of the growing is conducted indoors. As he began to research the indoor hydroponic market, he discovered “revenue growth in hydroponics is twice the average in the lawn and garden industry, with wider margins and year round demand.” After screening businesses, Scotts acquired General Hydroponics, “which sells nutrients used in hydroponics, and a separate soil company for a combined $130 million;” this was Scotts’ biggest acquisition in 16 years.
Waters Corporation has developed innovative analytical science solutions to support customer discoveries, operations, performance, and regulatory compliance. More specifically, in the cannabis industry, Waters’ Supercritical Fluid Extraction (SFE) Systems extract chemical compounds using supercritical carbon dioxide instead of an organic solvent. Waters allows cannabis businesses to take whole plant material and isolate certain cannabinoids for the purpose of manufacturing non-smoking delivery systems (edibles, oils, etc).
Xerox is the world’s leading enterprise for business process and document management. As Xerox began to diversify away from being a one-trick pony, they began to venture into obtaining local, city, and state contracts. In 2013, Xerox was a vendor who applied to be the state of Washington’s Seed to Sale Inventory Tracking System. Although they did not win the contract, it is interesting to see large enterprises competing in the cannabis space.
We are beginning to see major corporations dip their toes in this industry. The common theme is that the big companies are staying away from ‘touching the plant’ but are beginning to either acquire and/or market their products/services towards the ancillary side of the cannabis industry. With federal law making it difficult to bank, many large companies are beginning to spread their tentacles around the periphery of the industry. As the industry matures and state/federal governments make strides towards legalization, we will continue to see large companies not only enter the space but also get closer to ‘touching the plant.’
This is both a positive and a negative for the cannabis industry. One of the most appealing aspects of the industry is that federal law has thus far prohibited large companies from entering the space due to banking and regulatory issues. This has enabled startup cannabis businesses to blossom in a world where deep-pocketed corporations can’t displace them overnight. With little competition, entrepreneurs in the cannabis industry need more time to grow with the market and develop brand equity. If the industry were legalized tomorrow, many large companies would be able to displace nearly all companies that are operating today. As these start ups have more time to develop, they will become larger and it will make little sense for large companies to compete with these emerging companies but instead try to acquire them.
Ideally, it would be in the best interest of the cannabis industry if we kept federal law from changing and keep getting states to initiate medical and eventually recreational access. This would allow companies to operate organically without the constant fear of being displaced. On the flip side, without large corporations entering the space, capital will be limited as large institutions will be unable to finance this federally illegal industry. With some big states voting on cannabis in this election, this should further the conversation of federal legalization talks. Ultimately, as the industry continues to grow and more states come online there will be mounting pressure from the federal government and corporations to capitalize on this soon to be $50 billion dollar industry.