Thanks to favorable cannabis legalization measures in North America, the historically maligned plant has experienced a mini renaissance in the consumer market. Essentially, a black market has transitioned into a legitimate, taxable one – a win-win if you ask me. While we take for granted now that many cannabis-based products are legal, we often overlook what goes into those products. That’s where Good Earth Organics comes into play, making it a viable alternative option for your cannabis investing portfolio.
Specializing in soils and soil nutrients that incorporate organic and natural ingredients, Good Earth Organics is optimized for the production of cannabis and hemp products. Due to the incredible diversity that we see in the legal marijuana markets in the U.S. and Canada, as well as the rising prominence of cannabidiol (CBD), there’s never been a greater need for high-quality soil. After all, whatever goes into the plants you consume eventually ends up in or on your body.
Therefore, the product pipeline under Good Earth Organics is what I would term “foundational” assets. Ask any growing expert: if you want to go cheap on your project, don’t sacrifice soil quality. Otherwise, the entire production could be wasted at the end, resulting in devastating net costs. Arguably most in the field understand this, and that’s why they’re more than willing to pay for premium soil.
Not surprisingly, then, Good Earth Organics increased revenue by 43% in 2019 to over $3 million. Part of that again is a result of the underlying critical business – if you want to differentiate your products, quality is the best way to go. And with cannabis, the best use of your dollars is often in high-quality soils and nutrients.
But another important component is the company’s management team. Running a great organization is about people, people, people. And GEO is stacked with talent, proven track records and educational pedigree. Unlike other questionable cannabis investing plays, this is an organization that’s truly passionate about premium cannabis production (and not just the profitability element).
Plus, with Good Earth Organics, this company provides broader exposure to cannabis investing. For instance, rather than trying to figure out which electric vehicle company to buy, GEO in this analogy provides the lithium that powers EVs. In other words, think of GEO as more of Scotts Miracle-Gro (NYSE:SMG), which is up 47% year-to-date, rather than Canopy Growth (NYSE:CGC), down about 2% YTD.
Taking that aside, significant positive fundamentals may drive Good Earth Organics stock higher in value.
Fortuitous Timing Could Benefit Good Earth Organics
As I’m typing these words, I’m watching the Dow Jones Industrial Average take an absolute beating. With novel coronavirus cases rising to worrying heights, Wall Street is getting nervous. Despite a recovery bounce from the March doldrums, the pandemic has been a lingering dark cloud. Therefore, many companies have cursed their misfortune.
However, Good Earth Organics could be one of those rare companies that might benefit from this otherwise terrible crisis. Here are three reasons why:
- Consistently strong demand
- Possible relevance to Covid-19
- Strong political implications
First, cannabis has always enjoyed strong demand from the end-user, whether we’re talking about the pre- or post-legality era. But now that the Agriculture Improvement Act of 2018 legalized cannabidiol and hemp, CBD-based products have been flying off the shelves. According to Forbes contributor Iris Dorbian, cannabis researchers BDS Analytics and Arcview Market Research report that “the collective market for CBD sales in the U.S. will surpass $20 billion by 2024.”
Although I don’t want to get into the game of predicting industry revenue, the forecast is credible due to CBD diversity. This sector covers everything from nutraceuticals to beauty products to vaporizers. Considering millennials’ penchant for naturally-derived and cruelty-free products, CBD should have a long upside pathway.
Second, the coronavirus pandemic has naturally generated interest toward finding therapeutics and vaccines. Interestingly, cannabis could play a role in the therapeutic department. In theory, the medical use of CBD and tetrahydrocannabinol (THC) could help mitigate the cytokine storm associated with severe Covid-19 symptoms. Of course, research is still being conducted on this topic, but it makes for an intriguing new application of cannabis.
More realistically, many people are suffering from various conditions that CBD could potentially address. Obviously, many are stressed out, and stress is one of the incentives to use cannabis. As well, the Washington Post notes that many are suffering from insomnia due to the pandemic’s disruption. Here again, CBD-based sleep aids can provide naturally sourced relief.
Finally, we may be on the cusp of a significant transition in power. Should former Vice President Joe Biden win the White House, this could spark fresh momentum for full marijuana recreation. Already, Biden and running mate Senator Kamala Harris have pledged to decriminalize marijuana if placed in office. While this shouldn’t be confused with complete legalization, it’s a major step forward.
Risk Factors to Watch Out For
Although cannabis investing is an exciting and relevant venture, you should be aware that private investing opportunities inherently carry substantial risk. Here, prospective buyers need to watch out: no matter how great you think a company is or how viable the underlying industry, most startups fail. There’s no getting around this fact.
In addition, information can be hard to come by for equity crowdfunding ventures. Unlike publicly traded blue-chip stocks, private investing offers typically haven’t been dissected by the analyst community. Therefore, you are encouraged to perform due diligence before getting involved with Good Earth Organics or any other crowdfunding play.
Specific to GEO and cannabis investing, competition is one of the top concerns. With Good Earth Organics, the ingredients themselves are not proprietary but rather the process. That’s not necessarily a bad thing. For example, the ingredients for Coca-Cola (NYSE:KO) beverages are listed on the packaging. But the recipe is a closely guarded secret.
However, the soil industry features a relatively low barrier to entry. Therefore, it’s possible that other competitors can come along with similar or superior recipes. That could impede GEO’s valuation.
For me, the biggest headwind is something out of GEO’s control – the fractured, disrupted economy. Sure, the national unemployment rate has been ticking down. However, permanent job losses have been accelerating. That means all retail industries could end up emphasizing lower costs over higher quality. And that would commoditize multiple cannabis investing plays, putting premium contender GEO at a disadvantage.
A Foundational Cannabis Investing Opportunity
Ultimately, the strengths of the legal cannabis market may outweigh the risks associated with Good Earth Organics. Furthermore, the insulation factor is huge for GEO. Rather than picking out individual cannabis investing stocks, Good Earth offers relevance to the industry, not to a specific company. With demand for the green stuff projected to move higher, GEO seems like a solid bet for equity crowdfunding participants.
To learn more, check out the company’s SeedInvest.com profile.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
