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Why 2022 Will Be A Big Year For Investments And Growth In Ancillary Cannabis Products And Services

TL;DR – Investments and growth in ancillary cannabis businesses were strong in 2021. The trend has continued in early 2022. Keep an eye on these seven ancillary cannabis products and services this year: APOP Media, Ispire, GrowGeneration, Pistil, RONIN, urban-gro, Paybotic, and Willow Industries.

The ubiquitous pot leaf represents the cannabis industry like a brandished flag. But beneath the frosty trichomes, marijuana strains, infused beverages, dispensaries, and edible companies is an entire legion of products and services that support the burgeoning industry. These cannabis businesses fall under the category of “ancillary cannabis companies,” meaning that they help support the cannabis industry, but aren’t plant and product-based.

There are two types of ancillary cannabis companies, those that actually touch the cannabis plant, like testing labs, contaminant control solutions, preroll machines, and those that do not. This includes consulting firms and agencies, media and ad networks, ecommerce solutions, accessory manufacturers, consumer devices, cannabis-focused legal, accounting, design, and other services, banking solutions, and more.

The cannabis ancillary space saw big wins in 2021. In the software space, springbig, a leading provider of SaaS marketing solutions, consumer mobile app experiences, and omnichannel loyalty programs in the cannabis industry, becoming a publicly listed company by way of Tuatara Capital Acquisition Corporation TCAC+ Free Alerts, a publicly-traded special purpose acquisition company.

With a massive footprint in cannabis retail ecommerce by way of website menus, tech startup Dutchie raised $350 million in 2021 to double its valuation to $3.75 billion in less than a year. And wholesale ecommerce specialists and purveyors of the industry’s fastest “2-Day Delivery” hub-to-retailer fulfillment capability, Nabis, raised $23 million in Series B funding. 

Ancillary Cannabis Investments Already Hot in 2022

The excitement and activity in the ancillary cannabis space has continued into 2022. In the human resources realm, cannabis hiring company, Vangst, recently secured a $19 million round of Series B funding, signaling a growing demand in industry related jobs.

In B2C ecommerce, online marijuana platform Leafly Holdings secured $30 million in new funding in relation to its pending merger with Merida Capital Holdings.

In a move to reduce consumer friction and facilitate a better buying experience from ordering to pickup, High Tide Inc., (NASDAQ: HITI), a leading Canadian retail-focused cannabis company acquired Bud Room Inc., and its Fastendr technology that integrates retail kiosks with smart lockers for CAD $3.6 million. 

State Legalization Fuels Ancillary Companies 

2022 will see rapid expansion of medical and legal marijuana laws in the NE, Mid-Atlantic, and Midwest. These states will be looking to best practices, technologies, solutions and services from legacy legal states like Colorado, Washington, Oregon, and California.

As we draw nearer and nearer to full federal legalization, big pharma, alcohol, tobacco, and others will begin to enter the market and they will be forced with the decision to buy or build their own technologies, solutions, and services. Many will opt to buy-up existing ancillary cannabis companies because they don’t have the expertise to build their own, and will want faster time to market in doing so.

To be successful in the long-term, ancillary cannabis companies should meet six of my analytical criteria. Products and services should:

  1. Exist in the ancillary space (either plant-touching or non-plant touching)
  2. Be interstate compatible without costly customization
  3. Show potential for high growth
  4. Be able to sustain their competitive advantage
  5. Be preemptive of federal cannabis legalization
  6. Be scalable when the time comes

Bonus if the ancillary cannabis product or service can be easily transferable to mainstream industries. 

Just recently, for example, New Jersey selected Florida-based Metrc to provide seed-to-sale tracking for the state’s licensed cannabis program. With New Jersey, Metrc now has contracts in 16 states with legal marijuana programs plus Washington DC. The company meets the six criteria.

In the end, companies with the largest footprints will win, and that’s what Metrc is banking on. Ecommerce, advertising, media, B2B solutions, B2C devices are all in a race to capture and maintain industry relevance. Look for ancillary cannabis companies to shift into overdrive to scale in 2022, drawing in more investments and acquisitions along the way.

8 Ancillary Cannabis Companies to Watch Entering 2022

Cultivation Equipment

Identified as a top five ancillary cannabis stock to watch in 2021 by marijuanastocks.com, GrowGeneration Corp. GRWG-1.57%+ Free Alerts provides hydroponics, nutrients, lighting fixtures, humidifiers, and other related equipment for cannabis cultivators. The ancillary cannabis products retail chain has 62 stores across 12 states with 24 in California.

Through Q3 of 2021, GrowGeneration almost tripled its revenue to $332 million from the $131 million during the same period in 2020. Its net profits climbed to $16.9 million ending September 30, 2021, up from $3.8 million on September 30, 2020. All the while, acquiring Pacific Northwest’s Hoagtech Hydroponics

Advertising

APOP Media, the national leader in in-dispensary television advertising, owns 80% of the California and Nevada market. Alongside real-time pricing menus tied to POS systems, the company advertises cannabis and ancillary consumer products in 15 to 30-second clips in over 300 dispensaries across nine states. This messaging is the last interaction consumers have with a brand’s advertising at the point of purchase, and because it’s an owned media channel within a private business, APOP ads aren’t limited in what can, and cannot be advertised.

The company conducted a study to better understand the effectiveness of in-store cannabis brand advertising on a leading vape brand. APOP found that 16% of buyers reported that in-dispensary advertising is how they first learned of the brand, outperforming both email and billboard advertising.

“The fact is, in-store television advertising is closest to the final consumer purchase,” said Matt Young, CEO of APOP Media. “And it’s also the closest to the budtenders and decision-makers like managers, buyers, and owners, making it a great way for companies that want shelf-space to show their brand to retailers.”

The company is in the middle of a financing raise at a market cap of $20 million.  

Consumer Devices

Ispire is a cannabis consumer device company that made a formidable industry splash in 2021. The company’s flagship product, “The Wand,” is a sleek, portable eNail dab kit that uses induction heating, and was named “The Innovative Product of the Year” at the White Label Expo New York City. The Wand enables users to select a precise temperature for user to experience their preferred dabbing experience.

A torchless dab rig ring that behaves like a precise flame is the paradigm shifting type of cannabis consumer device innovation that will drive technology forward. The greatest of technical innovations born from the cannabis industry will find transferability to traditional applications.

Host to conference events, paired with a strong industry presence, Ispire made a name for itself last year. According to executives of the team I’ve spoken to, the company plans to show up big in 2022 to firmly capture more device adopters and retail channels.

Data

The cannabis industry is premature in consumer behavior and product development, with brands largely lacking data-based insights. This creates the need for inventive and unique data-powered solutions. Data aggregator and analytics company, Pistil, helps salespeople use data to make it easier to sell cannabis into retail stores–every brand’s prize.

The company’s apps and dashboards provide information that can be leveraged by sales teams. Salespeople can use mobile applications to identify business opportunities like low inventory levels, new stores, retailers that don’t carry their products, and more.

“Pistil gives our sales team unique insights that allow them to approach accounts and regions with real strategy, something this space has never seen. It’s a game changer.,” said Jigar Patel, Co-CEO of NorCal Cannabis Company.

Media

As cannabis companies scale, acquire, and raise more money they will be focused on customer acquisition and revenue and will need to spend more money on omnichannel marketing. Cannabis-to-culture media house RONIN understands this well, and has worked aggressively to build those mainstream channels and relationships. 

The company’s ALTRD.TV (formerly Social Club TV), re-launched in January 2022, and the company is producing several new documentaries around psychedelics with partners like The Dales Report and Cybin, airing a new series 106 & Spark with hip-hop star Problem, and airing the 2Chainz executive produced series The Red Ape Family based off of Bored Ape Yacht Club IP. 

“Beer and spirits have created the marketing playbook to grow global brands and avoid product commoditization,” Joshua Otten, the company’s co-founder and CEO said. “Brands and businesses that want to focus on big multistate operators (MSOs) can’t rely on limited social marketing, local small events, and budtender education like they’re doing today.”

RONIN is aggressively growing its user base and expanding their content and reach, expanding distribution into 10 new networks. The company expects to grow its audience 500% over the next two quarters, and is introducing new market content categories like psychedelics, and crypto/blockchain/NFTs.

The company recently completed a round of financing.

Payments/Banking

Paybotic is an extended service arm of Intelligent Payment Networks, LLC (IPN), that provides custom payment solutions to cannabis merchants. The industry’s original payment processor, Paybotic was in place when the first Colorado dispensary, Native Roots, went recreational in 2012. Today, the company has a presence in every medical and recreationally legal marijuana state. 

While Paybotic’s core business is offering processing services to retail dispensaries, last year the company expanded to offer banking services to ancillary businesses in the cannabis industry. It’s not only the licensed growers and retailers that face banking challenges due to federal prohibition.

“You would think that somebody selling grow lights would have no issues with getting payment facilitation services or bank account services, but they do,” Paybotic’s CEO Max Miller said. “I call them ‘guilty by association,’ because they surround the plant. These banks think they might as well be touching the plant—and treat them that way. We try to treat them as traditionally as possible and understand their business.”

Look for Paybotic to make further inroads into the cannabis industry just as Dama Financial, another financial service provider recently did, buying GrowFlow Corp., a B2B SaaS cannabis business platform, to build a more comprehensive merchant solution. 

Testing/Purification 

Is there mold, bacteria or E. Coli in your cannabis? Willow Industries’ patented, organic, ozone-based cannabis decontamination technology, WillowPure, uses ozone to safely clean cannabis flower, hemp and trim without compromising quality, flavor or effect. The process removes harmful microbes without degrading essential medicinal and chemical properties of the plant, while extending shelf-life.

The cannabis industry is still finding its footing in regards to contaminant testing, regulations and consumer safety standards. With WillowPure, cultivators of any size are able to meet microbial standards regardless of the testing regulations in their state, and gain a deeper understanding to address possible underlying issues. 

Willow Industries offers expert consulting services, as well. The company launched their microbial consultative team last year which includes a Ph.D. Microbiologist. The team helps cultivators locate contamination sources and advises on microbial best practices.

Jason Ellsworth, Co-Founder and COO of Willow Industries told me, “The cannabis decontamination space is poised for rapid growth. What sets Willow Industries apart from other companies in the space is that we provide more than just our WillowPure360 equipment. Our commitment is to help cultivators understand and target contamination at the source so the bioburden on the plants doesn’t get out of control. GMP [Good Manufacturing Practices] is the future of this industry and the companies that embrace this and use the WillowPure system as their preventative cannabis kill-step are going to be poised for success.”

Willow Industries’ two-prong attack on contamination must be working as they were recognized by Inc. 5000 as one of the fastest growing companies in America, ranking #205.

Consulting Services

Experienced companies providing consulting services to the cannabis industry have developed state-by-state expertise not found elsewhere in Controlled Environment Agriculture (CEA) or farming. That’s what gives urban-gro URGO its advantage and demand. With a highly complex state-by-state regulatory environment coupled with the rapid adoption of technology, services such as their architectural building design and engineering, systems integration, and crop protection programs are critical to a cultivator’s regulatory compliance and economic success in an increasingly competitive, crowded market.

“The proper adoption of technologies and products can only be accomplished by an experienced and seasoned team.” said Sam Andras, AIA and Principal of MJ12 Design Studio and Executive Vice President of Professional Services at urban-gro. “The same holds true for services.”

The company entered 2022 with a backlog in consulting business demand from the year before. And in a move to extends urban-gro’s services into early-stage conceptual design and planning, the company acquired MJ12 Design Studio and associated companies. Management expects MJ12 Design Studio and its parent company to generate $7-$9 million of revenue and $1.5-$2.0 million of adjusted EBITDA over the next 12-month period.

The design and delivery of intricate facilities, such as cannabis cultivation and manufacturing, are streamlined by companies with deep industry experience. This experience not only helps companies get through the design process quicker but also helps to ensure a smooth construction process. “In an industry that emphasizes the saying, time is money, working with an experienced and integrated team is critical,” Andras continued.  

Potential investors interested in the emerging cannabis industry who want to steer clear of the federal and state legalities around the industry would benefit to investigate stock and private equity investments in the ancillary cannabis business space.

I will continue a series on “Ancillary Cannabis Companies to Watch” throughout the year. Contact me through the following channels if you’d like your company to be considered: LinkedInTwitter, and Instagram


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April 11, 2022