Cannabis giants like Canopy (CGC), Aurora (ACB) and Tilray (TLRY) are all jumping into US hemp, and it totally makes sense why.
On December 20th, 2018 hemp was officially removed from the controlled substances list and separated by definition from marijuana. Before this it was wrapped up with marijuana, and was included in the controlled substances list as a schedule 1 drugs in the same category as heroin, which was totally absurd. With the legal status of hemp changed at a federal level everyone wants in as hemp is capable of producing many of the same products marijuana can, but without all of the legal red tape and restrictions.
Hemp can be grown outdoors without a lot of supervision. Unlike marijuana, hemp does not need teams of scientists, controlled growing rooms and all of the financial overhead of a greenhouse. The definition of hemp has been expanded to include CBD, CBN and CBG cannabinoids and other products from hemp, so it’s not just the stock in the seed anymore, these laws also make it so that the USDA the US Department of Agriculture is in charge of the hemp laws on the federal level.
On the Backs of Giants
The market for hemp-derived CBD was estimated at US$591 million in 2018 and is expected to balloon to US$22 billion by 2022, according to the Brightfield Group.
Last week Tilray signed a deal to acquire Hemp Hearts-maker Manitoba Harvest for up to $419 million in cash and stock. This gets Tilray into entry into the U.S. market in a big way as Manitoba Harvest are already on the shelves of retailers such as WalMart, Costco and Whole Foods. Manitoba Harvest also plans launch a branded line of tinctures, sprays and soft-gels containing broad spectrum hemp extracts containing CBD.
In May, 2018, Aurora increased its ownership in Hempco (HEMP) to 52.7% with the intent to produce hemp based CBD products.
Canopy Growth (CGC) has been given a license to produce and process hemp in New York. The company plans to spend up to $150 million to build the facility. The Tweed Grasslands facility in Saskatchewan is ready to scale from 600 acres of hemp growth in 2018 to 2,500 acres in 2019.
Hemp CBD can be very lucrative, if the crop can produce 10 percent CBD content at $65 per pound. With a yield of about one pound per plant and up to 1,815 plants per acre, that’s around $130,000 per acre annually. With other cannabinoids like hemp CBG these numbers get a lot higher, with 1,815 plants per acre at $130 per pound thats $260,000 per acre annually.
One of the reasons why CBG’s margins are so much higher than CBD is CBG acts as a stem cell, it is the precursor to all other cannabinoids and is often only found in small amounts. This makes pure CBG isolate is extremely valuable,
Here is a quick explainer video outlining CBG.
Freedom From the Fed
The Farm Bill allows for state, local and tribal governments to create their own hemp laws different from the federal law as long as USDA approves of them, with all those positive changes it means hemp farmers are now going to be able to get crop insurance apply for federal grants and loans. They can apply for certain crop certifications in different government programs.
The FDA now has say over how CBD can be treated and used in products. This is a good thing because it’s no longer a matter of the DEA, but now we have to wait for the FDA to come out with the right legislation.
The current legislation reiterates that the FDA has the authority to control CBD and hemp derived compounds are used in consumable products, the FDA has its authority because of something called the Food, Drug & Cosmetic Act which gives them the final say on which drug compounds or plant extracts can be used in ingestible products.
We can expect to see in 2019 is a few things when we’re going to see more mainstream retailers feel okay bringing CBD products onto their shelves, also we’re going to see e-commerce businesses, banks, insurance agents and hemp companies more able to work freely. The federal changes have been signed into law, and now it’s up to state and local governments to come up with their own policies and programs so that their local farmers can start participating in this industry.