Why We Decided to Expand Growlife/EZ Clone Into the CBD-Rich Hemp Clone Business Starting in 2020
- The CBD product industry projected to be $24 billion CBD market with 700% growth with a broken link in the supply chain
- Industry-wide lack of CBD-rich hemp clones needed to fulfill demand for consumer products
- GrowLife to leverage subsidiary EZ-CLONE’s expertise by adding CBD-rich hemp clones to product offering, eyeing large market opportunity driven by lack of supply of hemp clones
GrowLife (OTC: PHOT) recently announced that the company is targeting a whole new product market segment through our subsidiary EZ-CLONE. When examining the emerging cannabis industry, it became extremely apparent that there is a lack of supply for plant starters for hemp growers trying to harvest CBD-rich crops. This was illustrated to us by the recent increase in demand for our commercial cloning and propagation systems. As such, we decided to look closely at the cause for this spike in demand and identified a very specific opportunity for GrowLife and EZ-CLONE. I will use this posting to describe in greater detail the background on the growing CBD market, some specifics on how the raw materials for CBD products are derived, and how EZ-CLONE could not be better positioned to provide the solution to this industry-wide issue.
WHY?
It’s actually very simple — we are pursuing what we believe to be the largest plant-based supply-chain shortage in history. But let’s take a deeper look…
SCALE OF THE OPPORTUNITY
CBD is an extract found in cannabis plants such as marijuana and hemp. Starting just a few years ago, CBD-based consumer products hit the shelves with claims of being the ultimate wellness ingredient. Skip ahead to today, CBD products are being sold everywhere from your local pharmacy to national grocery outlets. Products come in all shapes and sizes, from medical focused, high-dose products to cosmetics and even pet products. The demand for CBD products has grown over 700% from just last year, and Bloomberg is reporting that one in seven Americans are taking CBD products daily. The U.S. hemp CBD market is expected to triple by 2022; meanwhile, we believe analysts continue to underestimate the shift in consumer adoption of these products.
It’s almost impossible to hide from the stories of CBD being infused into almost any and every product. After the US Farm Bill federally legalized hemp in 2018, large companies across the U.S. are identifying ways to integrate CBD into their products. Soft drink giant Coca-Cola is working with a global cannabis company to develop and test market CBD-infused drinks. The company is focusing on creating CBD beverages to address inflammation, pain and cramping, even though these claims have not been evaluated by the FDA. Consumer sentiment for these CBD products is so strong that it is forcing companies to make moves as quickly as possible.
That said, let’s analyze this specific situation from a supply chain standpoint. Coca-Cola Company products are consumed at a rate of more than 1.9 billion drinks per day. If Coke, or a similar global beverage company with similar metrics looked to test market a CBD-infused product, one could estimate that they would start at about 1% of that number, or 19 million soft drinks. Based on rough estimates of 36 grams of CBD isolate extracted per hemp plant, and the average dose per product of around 10 mg of CBD, such a test would need almost 2,000,000 hemp plants just to supply the first year of product testing.
While hemp production is growing as quickly as possible, only an estimated 200,000 acres will be planted in 2019 with an average of 1,000 plants per acre. This example illustrates the extreme lack of supply for hemp-derived CBD raw material and how quickly hemp agriculture in the U.S. will need to grow in order to fill the demand. And that is only the assumed supply demand from Coke for a test run. Imagine companies like Johnson & Johnson, who is quietly conducting studies with CBD, adding CBD to some of their cosmetic and skin care products, or Coke doing a worldwide roll out — it is easy to see where hemp production for use in CBD products is headed.
HOW IS THIS HEMP GROWN?
Since hemp’s legalization, we have seen a large shift in the agricultural community toward hemp. It creates a much larger revenue opportunity for farmers per acre. While hemp requires less resources such as water than many other plants, growing hemp specifically for CBD extraction is much more difficult than many farmers anticipate, and most don’t have the experience to do it correctly. Factors such as THC/CBD content, plant gender and plant mass are extremely important variables that affect the viability of a hemp crop being grown for use in CBD products. Most people would assume that plants are all grown from seeds; however, there are really two ways to start growing plants, either through seeds or by planting clones.
In most plants, seeds are the most cost effective and traditional way to grow plants as variations in plants do not matter; however, in hemp plants this could not be farther from the truth. Unlike with seeds, clones create exact genetic replicates of their mother plants. When growing hemp for CBD extraction, entire crops could be rendered useless if they do not contain enough CBD, contain too much THC or are the wrong gender. Highest yield of CBD is commercially extracted from female hemp plants and cloning is the best way to ensure you have a CBD-rich, low-THC female crop.
Unfortunately, many of the most experienced farmers have little or no experience in working with clones, especially growing them themselves. Selecting and improving the genetics of mother plants, cutting them for cloning and transplanting them is an entirely new process for farmers entering hemp production from other crops and farmers across the country are struggling to understand the intricacies of this part of the planting process. A fourth generation farmer in North Dakota experienced exactly this, going from 4,000 plants to zero due to the variations in plants.
WHERE DOES GROWLIFE/EZ-CLONE FIT INTO THIS?
After understanding what we have just discussed, it is fairly simple to see an unprecedented need for cloning solutions in this exploding market. In 2018, GrowLife acquired EZ-CLONE. EZ-CLONE is an industry-leading manufacturer of commercial cloning solutions with more than 20 years of experience in cannabis cultivation. Historically, cloning was mostly used in marijuana cultivation as genetic replicates are equally as important as they are in hemp for CBD. Consumers demand specific strains with little variation, and cultivators want the highest yield possible for the greatest possible returns on their plants.
EZ-CLONE systems have produced more than 100 million clones in the cannabis space. GrowLife experienced a large uptick in EZ-CLONE orders since hemp legalization; however, hemp farmers are having trouble integrating a whole new growing phase into their operations. While the EZ-CLONE systems are mostly automated and reduce the time to clone by 30%, farmers are simply not familiar with the practice and are learning on the fly, resulting in many lost crops.
As the industry-leading manufacturer of cloning systems combined with our unmatched expertise in cloning, GrowLife identified how well-positioned the organization was to expand its offering and be the overall solution to this CBD-rich hemp clone supply chain shortage. Leveraging all of the assets of EZ-CLONE, GrowLife plans to expand its product offering by selling the actual CBD hemp clone plants starting next year. We have been doing our research and vetting potential genetics partners that would enable us to bring to market the best clones possible for CBD hemp farming.
IN CLOSING: SO, WHAT’S THE PLAN?
Obviously, looking at the tremendous new demand for CBD and lack of supply of the proper clones and CBD-rich hemp plants, the opportunity for GrowLife is unprecedented. We will continue to deliver the industry’s leading cloning systems as well as the clones need to supply this rapidly expanding hemp CBD market. This combined offering will position us as the natural winner.
As we recently announced, we have secured a new financing agreement that will enable us to pursue this expansion as well as further build our base business which continues to see rapid sales growth.
The goal for next year is to establish a strong foothold — looking to deliver millions of clones to farmers at a very competitive price. The following year, in 2021, we will work with our cultivation partners to further segment the genetics and improve the yield. Beyond that, we will continue to innovate to appeal to the different markets that continue to come online through the introduction of new extracts such as CBG and CBN.
Each year, we will continue to progress and capitalize on the continued growing demand for hemp-based CBD and our large network of cultivators and experts.
This will not be a one-trick pony or a one-and-done. In 2020, we will work to help jumpstart the market, working to improve our genetics with more specific closing profiles focused on increasing volume year-over-year, we will expand both our footprint and geographic reach — developing high-volume new market segments.
This is where we think the opportunity lies and it is an exciting time for our company.
