Part of cannabis laws and regulations
Several of Canada’s largest marijuana companies are poised to enter the U.S market following the passage this week by the U.S. Congress of hemp-reform legislation.
The Farm Bill, which made it through the U.S. Senate on Tuesday and the House of Representatives on Wednesday, removes hemp extracts such as cannabidiol (CBD) from the Controlled Substances Act. This means that CBD – the non-intoxicating cannabinoid sometimes associated with therapeutic benefits – will no longer be illegal at a federal level in the United States, as long as it comes from plants with low levels of Tetrahydrocannabinol, or THC. The last step is for U.S. President Donald Trump to sign the Farm Bill into law.
The change is a boon for Canada’s deep-pocketed cannabis companies, eager to stake a claim on any part of the U.S market. Over the past several years, the popularity of CBD has exploded south of the border, appearing in drinks, nutritional supplements, even cosmetics.
U.S. hemp-derived CBD sales grew from US$129-million in 2016 to US$190-million in 2017, according to market research firm New Frontier Data. Sales could reach US$450-million by 2020, the firm estimates.
Canada’s largest marijuana firms, however, have been kept on the sidelines, mostly because of TMX Group rules prohibiting Toronto Stock Exchange-listed companies from conducting federally illegal business in the United States. Descheduling hemp-derived CBD removes that barrier.
“We believe that the Farm Bill presents a near-term opportunity for Canadian [licensed producers] … to generate incremental revenues, increase their brand awareness and achieve nationwide distribution in one of the most coveted consumer markets in the world,” wrote Eight Capital analyst Graeme Kreindler, in a research note on Thursday.
“Longer term, we recognize the early-mover advantage these companies could create through their hemp-CBD products and leverage them in the event that federal legalization [of cannabis] occurs in the U.S.,” he added.
One of the companies best-positioned to take advantage of the change is Village Farms International Inc., an established vegetable grower with more than 100 acres in greenhouse buildings in Texas. The Delta, B.C.-based company entered the cannabis industry in 2017 through a partnership with licensed producer Emerald Health Therapeutics Inc. It’s one of only two Canadian firms represented on the board of the U.S. Hemp Roundtable, an industry lobby group.
“If you don’t immerse yourself in the industry today, then you’re really not going to be part of developing the genetics going forward,” said Michael DeGiglio, chief executive of Village Farms.
Village Farms plans to convert part of its Texas greenhouse infrastructure to hemp in the coming year, Mr. DeGiglio said. However, much of the company’s crop will come from outdoor fields, either owned by Village Farms or by contract farmers growing on behalf of the company.
“Greenhouses will have a role – although not as much as fields for pure CBD-hemp – only because there will be pharmaceutical companies that want to grow in a controlled environment,” Mr. DeGiglio said.
The Canadian marijuana companies backed by major U.S. firms also appear ready to enter the American hemp market. Canopy Growth Corp., which is backed by alcohol giant Constellation Brands Inc., has been experimenting with field-scale hemp-derived CBD production in Saskatchewan. In October, the company paid more than $400-million in cash and shares to acquire Colorado-based hemp research company ebbu, Inc.
“The farming part is other people’s business, when it comes to hemp fields,” said Canopy co-CEO Bruce Linton of the company’s CBD strategy for the U.S. Canopy plans to focus instead on genetics, CBD extraction and branded CBD products, which Mr. Linton hopes will be sold in mainstream grocery stores and pharmacies across the U.S.
“Certainly there’s going to be a line of topicals, a range of beverages and I think you’ll find that there’s even some inhalables that focus on anxiety and events of that nature. And don’t forget the dogs,” Mr. Linton said.
Cronos Group Inc., which recently announced a $2.5-billion investment from cigarette maker Altria Group, Inc., appears well-positioned to enter traditional tobacco-growing states. The company hasn’t declared any U.S. assets, and it declined to comment on U.S. hemp plans. But as Martin Landry, an analyst with GMP Securities LP, put it, “Altria provides Cronos with a pretty large Rolodex of farmers to reach out to.
“I would think that all the major players, like Aurora, Aphria and Tilray are also already looking, and have probably already locked up some assets. Maybe the purchase is triggered on the hemp bill passing, or something like that,” Mr. Landry added.
While the passage of the Farm Bill removes the main legal obstacle to Canadian companies playing in the American CBD market, it will take time for a mature hemp industry to develop. Individual states and tribal governments need to amend their own agriculture laws to align with the new federal rules, and then have their hemp programs approved by the federal Department of Agriculture.
“Most states are going to have to go back to the drawing board and catch up,” said Joy Beckerman, president of the Hemp Industries Association, an industry lobby group. "But I think these are actually going to go very fast. There’s already tremendous investment taking place, and this is just going to embolden people.”
Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.
Mark Rendell