Two Ancilliary Cannabis Stocks for your Portfolio
The cannabis business is booming. Fifty countries around the world have legalized medical cannabis and 10 more are expected to continue with the trend this year. In 2018 legal cannabis was a $10.4 billion industry in the United States. Investors allocated $10 billion to North American cannabis businesses in the same year. This is double what was invested in the sector in the previous three years combined. Interest in the sector is still ramping up, the North American cannabis market is expected to receive over $16 billion of investment in this coming year, 2019.
Cannabis companies’ hot run isn’t expected to cool down anytime soon. According to analysis from investment bank Bryan Garnier & Co Ltd, which focuses exclusively on growth sectors, “the global legal market [for cannabis] will reach $232 billion in 2027.” If you are looking for a way into this white-hot market but want to hedge your bet why not consider lighting firms that supply the industry. Most cannabis is grown indoors under high powered light setups. Lighting companies are catching on to the cannabis boom and starting to tailor parts of their business to the industry. Even without cannabis, the sector seems solid. It has been estimated that the horticultural lighting market will grow from from $2.43 billion in 2018 to $6.21 billion by 2023, with a compound annual growth rate of 20.61% from 2018 to 2023. Here are a few lighting companies with cannabis ambitions to consider for your portfolio.
Osram Licht AG (ETR:OSR)
Munich, Germany-based Osram Licht AG is an international lighting manufacturer with a market capitalization of over $4 billion. Osram has a 110-year track record in the lighting sector. The company has developed high-tech lighting solutions for a host of products including smartphones, virtual reality headsets, and autonomous vehicles just to name just a few.
Osram recently bought Austin, Texas-based lighting startup Fluence Bioengineering. Fluence creates LED-based lighting systems for commercial farming and is one of the cannabis industry’s largest lighting suppliers. Cannabis growers make up over 50% of the company’s customer base. Large players in the industry such as MedMen (CNSX:MMEN) rely on Fluence’s lighting products to grow their cannabis. Founder Nick Klase was quoted saying“in the last four years we’ve continued to double company sales year-over-year, and we do not see that slowing down anytime soon.”
Osram intends to use the Fluence deal to further its new “horticultural business pillar”, according to a company spokesman. My guess is that an old-school company like Osram uses “horticultural” as a catch-all phrase and that this new “pillar” includes cannabis.
Signify NV (AMS:LIGHT)
Netherlands-based Signify, a spinoff of Royal Philips NV, is the world’s largest lighting company and has a long history of selling equipment to the horticultural industry. The company has smartly noted that there is growing demand for a new type of crop: cannabis. The CEO of Signify, Eric Rondolat, has said publicly that the company “participates” in territories that cannabis is legal and that “worldwide we see an evolution in the thinking of cannabis production… [and] have seen big growth in cannabis being legalized lately and we see that also through our activity.”
Signify has an edge in its intellectual property. The company has developed over 150 different types of horticultural lights which are each adapted to individual crops in order to improve yields, quicken flowering and speed up root growth. Signify does not break out separate earnings derived from cannabis production and Rondolat has declined to provide details.
Featured image courtesy of Shutterstock.