Just Add Water: Hydroponics Upends Pot Farming

Snap quiz: During the 19th century San Francisco gold rush, which fortune hunter went on to achieve the greatest fame and wealth?

Cue game show music…

Answer: Dry goods proprietor Levi Strauss, inventor of the quintessential American garb.

Okay, that was a trick question. The point is this: when the era’s gold-crazed prospectors flocked to the West Coast, like Bogie’s grizzled gang in The Treasure of the Sierra Madre, most of them came up with zip, zilch, nada. The people who really made money were the entrepreneurs who supplied the picks and shovels or, in Levi’s case, the blue jeans.

That’s why, during the 21st century marijuana green rush, I especially like the “pick-and-shovel” plays on the marijuana boom. These companies are infrastructure stocks that can be wildly profitable.

Marijuana investing can be risky, but you can seek greater safety by focusing on the ancillary firms that provide infrastructure services for growing pot, in either the recreational or medicinal segments.

Pick-and-shovel plays can be reliable money-makers, because they provide essential value-added services. What’s more, they usually enjoy a diversified roster of clients in several different industries, which buffers them from the inherent volatility of the marijuana business.

Among marijuana infrastructure companies, some of the more promising firms deploy controlled environment agriculture systems that are designed to use as little land, water and energy as possible. They market themselves as eco-friendly as well as more cost-effective.

These companies have designed vertical farming solutions that use the latest pot growing techniques. Which brings me to one of the hottest trends in not just marijuana growing but all of agriculture: hydroponics.

Better weed, with less hassle…

An increasing amount of marijuana is being grown not in soil but in windowless warehouses, aka vertical farms. These futuristic growing environments manipulate light, humidity and temperature to grow cannabis. Added to the mix is nutrient-rich water, via hydroponics.

Hydroponics allows marijuana growers to grow better weed in less space and with less labor. Venture capitalists are excited about this trend and they’re pouring money into hydroponic-enabled vertical farms that grow pot.

According to Grand View Research, the global hydroponics market was valued at USD 1.33 billion in 2018 and is expected to grow at a compound annual growth rate of 22.52% from 2019 to 2025 (see chart).

Data that breakdown the percentage of hydroponics specifically devoted to marijuana farming are elusive. But generally speaking, hydroponic operations represent the next generation of marijuana agriculture. They foster perfectly balanced growing conditions via artificial intelligence, data analytics and other sophisticated techniques. Technology companies that provide proprietary software for marijuana hydroponics are thriving.

The climate crisis…

These vertical hydroponic farms are emerging at an inflection point in global agriculture. The extreme heat that gripped the Pacific Northwest last week almost certainly would not have occurred if not for global climate change, a scientific group reported Wednesday.

Whether the culprit for the rising incidence of scorching heat and “super storms” is man-made climate change or natural cycles, severe and unpredictable weather is a new global reality.

Pollution, overcrowding, urbanization, topsoil erosion, and the heightened frequency of droughts is prompting open-field farmers to seek technological solutions to growing crops. One of the advantages of hydroponics is that growing isn’t constrained by the weather or the seasons.

So far this year, more than 2,300 farms are growing hydroponic crops in the U.S. and their number is rapidly expanding. In 2020, $929 million was invested into U.S. indoor-farming enterprises, more than double the level of investment in 2019, according to the latest data from PitchBook.

These new systems produce sanitary marijuana and other crops, without pesticides. Welcome to the Brave New World of ag-tech.

Read This Story: Hitting the Cannabis Jackpot

Under the technological and economic conditions that I’ve just described, cannabis investments confer market-beating potential and they’re a must for your portfolio. But the key is finding the right pot stocks. You need to conduct due diligence.

We’ve done the in-depth research for you. If you’re looking for a future cannabis bonanza, click here for details.

John Persinos is the editorial director of Investing Daily. He also writes the twice-weekly e-letter Marijuana Investing Daily. Send your questions or comments to mailbag@investingdaily.com. To subscribe to his video channel, follow this link.