There is a popular phrase in the world of startups that "during a gold rush, you can mine gold or sell shovels". During the California Gold Rush in 1849, thousands of people gathered in the west to try their luck in the hills and mountains of the country.
While most Joe Schmoes were looking for gold in the river, seeking to shed their burden, some savvy entrepreneurs have seen the large developing market grow to sell to these prospectors. Entrepreneurs like Levi Strauss and Samuel Brennan were among those selling pickaxes, jeans, wheelbarrows, tents and everything else that thirsty men wanted and who brought in millionaires.
Gold mining ended up generating a worse return on labor and capital than the creation of a store as a supplier of ancillary products (or "Sale of shovels").
170 years later, a new gold rush is coming: the gold rush of cannabis. If you are less inclined to invest directly in volatile stocks of cannabis companies but want to be exposed to the sector, or if you think that a "shovel" strategy is no longer your style, here are some subsidiary corporations of the cannabis industry, but not the cannabis companies to consider in your portfolio:
The Brink's Company (NYSE: BCO)
Cannabis is illegal at the federal level in the United States. It is a Schedule 1 drug – in the same category as LSD and heroin and considered to have no therapeutic value. The big banks and payment companies are too scared to provide their services in states where cannabis is legal, so money is king. Cash is also dangerous, which is why cannabis companies use armored vehicle services such as Brink's to move and store their money. With the cannabis boom, more money spent means more money to move and protect, which means more business for protection services companies such as Brink's.
Shopify (NYSE: BOUTIQUE)
The Canadian software provider as a Shopify service has worked hard to get involved in the world of cannabis. Harley Finkelstein, chief operating officer of Spotify, recently said the company was already well established and had contracts to "grab the advantage" of the Canadian cannabis industry. The added value of Shopify is that it operates an e-commerce platform that connects retailers to suppliers and consumers. The platform will analyze large amounts of data generated and identify consumer buying trends within it, which will help retailers, suppliers and producers to maximize their revenue.
Shopify is associated with some of the largest producers in Canada, including Canopy Growth Corp. (NYSE: CGC), Aurora Cannabis Inc. (TSE: ACB), The Green Organic Dutchman (TSE: TGOD), Hexo Corp. (TSE: HEXO) as a point-of-sale platform provider. The company also participates in government-run cannabis store websites for the provinces of Ontario and British Columbia.
KushCo Holdings (OTCQB: KSHB)
KushCo Holdings is the parent company of Kush Supply Co., Kush Energy, Hybrid Creative and Koleto Innovations. These companies provide a range of ancillary products and services to the regulated cannabis and CBD industries.
The packaging is one of KushCo's main product lines. The regulation on packaging and labeling in the cannabis and CBD industries varies considerably from one jurisdiction to the other. KushCo provides secure and tamper-proof packaging in compliance with regulations. The company already supplies products and services to more than 5,000 producers worldwide.
KushCo's Kush Energy supplies hydrocarbons and solvents used in the production of cannabis oils and extracts. Hybrid Creative provides branding services and e-commerce solutions for the cannabis industry. KushCo has added Danny Moses, investor and legendary entrepreneur, to the KushCo Advisory Board. Mr. Moses "will help provide strategic advice and expertise to help accelerate profitable growth, manage risk and improve operational performance" for the company.
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