Capitalising on North America’s love of cannabis

The North Americans sure love their cannabis.

It’s been less than a year since Canada became the first industrialised country in the world to legalise recreational cannabis and only the second overall behind Uruguay. Now 11 US states plus the District of Columbia have joined the ranks, with Illinois being the latest US state to join the ranks.

Combined with the market for medicinal cannabis, the total North American cannabis market is growing at a 28% compound annual growth rate and is expected to be worth US$35 billion (A$50B) by 2023.

ASX junior Roots Sustainable Agricultural Technologies Limited (ASX:ROO) is has seen the opportunity at hand and is making inroads to the lucrative North American sector.

After logging four sales since March of its Root Zone Temperature Optimisation (RZTO) technology to commercial organic growers and processors in the North American cannabis sector, the company is seeking to further expand into the sector capitalising on sales momentum and local operating costs and environmental pressures.

ROO’s RZTO technology optimises plant physiology for increased growth, productivity and quality by stabilising the plant’s root zone temperature. The technology delivers solutions to growers that lower operating costs and mitigate environmental pressures.

These solutions are becoming increasing important to North American growers as competition in the space intensifies Consider that in California alone, the state’s three licensing authorities have issued over 10,000 commercial cannabis licenses to cannabis businesses.

Given this rate of growth, and the expected growth to come as additional US states legalise cannabis for both medicinal and recreational use, Roots has today confirmed that it is “looking at other acquisitions in the cannabis space that could add value to the existing business”.

The market took this news well, with the company’s share price gaining more than 20% this morning.

Following its initial sales into the sector, Roots is recruiting a US-based senior management and operations team to handle increased demand from customers and manage future RZTO installations.

Roots recognise that its ability to service the expected growth in North American RZTO is only possible if it boosts its local on-the-ground presence in the US and Canada. This team will allow the company to more efficiently support its customers and harness its current momentum.

Increased completion amongst growers in North America has led to commodity pricing pressures, which has upped the demand for more innovative growing methods that are being implemented on a wider scale. For Roots, this has led to an increased number of queries for its RZTO heating and cooling technology from growers throughout these sectors.

The company’s entrance into the North American market followed a successful technology showcase to key producers in California, Colorado and Canada who expressed interest in deploying RZTO technology to improve yields.

Since then, frequent extreme weather conditions is making it difficult for farmers to regularly produce high quality product. This is where Roots’ RZTO heating and cooling technology is proving critical for high worth agricultural crops, helping farmers mitigate the risks of extreme temperatures.

As competition amongst growers intensifies, market pressures are causing prices to drop so they are increasingly looking to adopt cost effective technologies to improve operational efficiencies.

For Roots, its RZTO system is the only known and successfully tested open field root zone heating and cooling technology, which caters to the trend away from traditional greenhouse and indoor facilities towards lower cost growing methods such as open field cultivation.

While the ROO has a market capitalisation of just $5.7 million, the recent sales have brought back some optimism to the stock, and there are plenty more reasons to be optimistic...

In addition to these recent sales into the North American cannabis sector plus the suggestion of more to come, there’s the company’s management team which comprises proven industry players/

ROO co-founder and executive director, Boaz Wachtel, who is also the inventor of ROO’s core technologies is particularly noteworthy.

Along with his work at ROO, Boaz was also a co-founder of Creso Pharma Limited (ASX:CPH) and has been its Chairman since 2017. Creso produce and markets a range of cannabis derived is products for human and animal use, and recently received a $122 million takeover offer from Canadian cannabis company, PharmaCielo Ltd (TSXV:PCLO) — a win for shareholders given the offer was at a 50% premium to its closing price prior to the announcement.