One of the marijuana industry’s largest lighting suppliers, Fluence Bioengineering, is about to go global, and marijuana industry watchers are taking note.
The deal signals increased interest from international businesses and investors in well-positioned U.S. ancillary cannabis companies.
Fluence, an Austin, Texas-based company that makes LED-based lighting systems for commercial farming, was recently acquired by Osram for undisclosed terms.
Munich-based Osram is a 4.1 billion euro international lighting manufacturer that trades as OSR on the European exchanges.
Here are five reasons this announcement is garnering attention from industry investors and other members of the cannabis business community:
1. The deal reflects on mergers and margins for the industry at large – and how money chases growth.
Merger and acquisition activity has been lighting up across the cannabis industry – with companies acquiring competitors in the hustle to scale up.
“As you have more production, you have to become more efficient and you have to lower your costs so you can drive quicker returns,” said Scott Greiper, president of Viridian Capital Advisors.
“At the end of the day, it’s about chasing higher yields, higher THC content and having more controls over the rate of growth.”
Ancillary companies that provide solutions to help cannabis firms boost crop yields and margins are increasingly more attractive acquisition targets for larger companies eager to tap into the industry’s rapid growth.
“It’s not surprising to us to see a large, international manufacturer enter the market, especially when you consider how quickly it’s growing and that the primary product that’s being adopted by these large grows are the LED lighting systems,” Greiper said.
“Money chases growth, and right now the profit margins on cannabis are better than any other crop around the world.”
2. It exhibits how some long-established businesses are showing more interest in newer MJ-related companies.
Founded in 2013 by Nick Klase and Randall Johnson, Fluence crafts LED lighting systems for indoor growing for everything from herbs to lettuce to cannabis.
MJ growers make up more than 50% of the firm’s customer base – with industry giants including MedMen among the top names on the company’s growing client list.
In 2017, the company’s sales were in the “mid-double-digit millions of dollars,” said Klase, noting the company has never publicly released revenue.
“In the last four years, we’ve continued to double company sales year-over-year, and we do not see that slowing down anytime soon,” he said.
As for Osram, the company boasts a 110-year history in the lighting sector with massive high-tech lighting solutions for a host of products, including smartphones, virtual reality and autonomous vehicles – among others.
The Fluence deal lands as the firm prepares to launch a new “horticulture business pillar,” said Jens Hack, a company spokesman.
Osram has developed “smart” lighting with programmable LED light in different spectrums that allows growers to create specific light “recipes” for different plants, Hack said.
“With the acquisition of Fluence, we tap their experience in compiling smart LED luminaires and light recipes for different growing purposes and vertical farming,” he said.
3. It shines a light on the macroeconomics of what’s happening now in cannabis.
Klase pointed out that more than two years ago he began “getting calls from very large, billion-dollar companies” interested in Fluence’s technology.
“There is no getting around the macroeconomics of what’s happening in this industry. Everyone is building farms faster than you think,” he said.
Fluence hired an outside team to help cull through the options and offers.
“We didn’t want to just cash out,” Klase said. “We wanted a strategic partner to help us achieve our goal, which is to be the No. 1 player in the world in the lighting horticulture segment.”
4. The move highlights how investors are on the prowl for ancillary companies with an ag-tech focus.
The hunt is well underway among larger players eager to tap opportunities in the cannabis sector.
As the deals pick up, ancillary firms focused on agricultural tech will continue to be the top targets, predicted John Downs, director of business development at The Arcview Group.
“It’s really a sign of the times that clearly public sentiment is shifting across the globe, and even publicly traded companies – especially in the international markets – are looking to tap into technology and (intellectual property) and ag-tech that allows them to get in because the margins are so high,” he said.
Companies that offer lab testing services could also be next in line, Greiper noted.
“The type of testing that’s being done to make sure the plants are mold or pesticide free – it’s the kind that’s been done around the world for larger labs for decades,” he said.
“We’re quite certain over the next two years, you’ll see a Lab Corp. or larger international lab begin to acquire their way into the cannabis space.”
5. It underlines the ways innovation and unique technical knowledge attract investment.
Neither Osram nor Fluence has disclosed the financials behind the deal.
Fluence’s team of about 100 employees will be folded into Osram’s professional and industrial applications segment of the company’s specialty lighting business unit.
According to Osram, it’s interest in Fluence is “mostly for its innovations and its technical knowledge of smart growing systems,” Hack told Marijuana Business Daily.
“Osram was not active in marijuana growing equipment before, though we know it is an important and fast-growing market,” he said.
Klase added: “They want us to cultivate the food-based market as much as we can, but they’re not telling us to shy away from cannabis.”
Lisa Bernard-Kuhn can be reached at [email protected]