Khurram Malik believes there is a “dramatic” lack of legal CBD products in Canada.
The CEO of Biome Grow, a cannabis holding company with licensed pot operations in a number of Atlantic provinces, says his ongoing conversations with various provincial liquor control boards, specifically in Nova Scotia and Newfoundland and Labrador always ends up circling back to one topic — the complete dearth of cannabis products high in CBD content, versus the large demand for it.
“When recreational legalization was going to happen, I think many of the licensed producers focused too much on the THC side of the sector. Now we’re seeing there’s actually a huge demand for CBD,” Malik said.
CBD is a molecular component contained in both the hemp and cannabis plants, which is frequently touted as a cure-all that has become a craze in industries as varied as pet food, cosmetics and bottled water. It’s medicinal properties are still largely anecdotal, but its reputation gained a huge boost just this past December when the U.S. Farm Bill was passed, officially making hemp-derived CBD legal.
Canadian cannabis producers, observing the CBD-rush, have started developing their own strategies to tap the drug’s potential. Just recently, Canopy Growth Corp. announced it would spend $150 million to set up a hemp facility in New York state, where hemp-derived CBD would be extracted and sold to consumers there.
Canopy’s CEO Bruce Linton says his company’s New York hemp venture is just a replica of a project they have been pursuing in Saskatchewan.
“We have been quiet about this, but we’ve been experimenting with hemp-derived CBD out in our hemp facility in Saskatchewan. We’ve developed a processing and extraction technique and we’re going to take that to New York,” Linton told the Financial Post.
In November 2017, Canopy acquired certain assets and intellectual property — including a hemp farm — from a company called Green Hemp Industries Ltd., whose founder, Jason Green, is a long-time hemp farmer in Saskatchewan. Canopy also, through the acquisition of rTrees Producers Ltd. based in Yorkton, Sask., in early 2018, began developing a hemp-cultivation facility at the same site. They were one of few licensed cannabis producers at the time to diversify into the hemp industry.
CBD’s legal status in Canada is complicated. Hemp-derived CBD, the more cost-effective means of obtaining the compound, can only be extracted by licensed cannabis producers, not hemp farmers, and sold only in oil-form.
Linton believes regulatory change regarding hemp-derived CBD, specifically regarding the kinds of products that can contain the compound, will come quickly in Canada.
“When that happens, we have multiple agreements and geographic areas locked-up, and processing methods ready to go,” Linton said.
At least officially, there are no other licensed producers who own hemp farms in Canada. That however, doesn’t necessarily mean Canopy is the only cannabis company with an eye on hemp-derived CBD.
Malik’s Biome Grow recently announced a major supply contract with a hemp-CBD company called CBD Acres, which involves the purchase of 20,000 kilograms of hemp-derived CBD concentrate.
Last September, Aurora Cannabis announced it had acquired Europe’s largest producer and processor of organic hemp, a company called AgroPro, which owns up to 4,000 acres of hemp farms across Lithuania, Latvia, Estonia and Poland. Aurora’s aim is to be involved in the extraction of CBD from hemp, to be used as an ingredient in wellness products, and sold to the European market.
Then there are CBD-only producers, who don’t have a license to grow cannabis, but claim to have the intellectual property and know-how to develop CBD products. Licensed producer WeedMD recently partnered up with Phivida Holdings, a company that calls itself a “premier provider of hemp-based CBD-infused food and beverages” and is listed on the CSE. The joint venture — CanBev — is currently constructing a cannabis-infused beverage production facility in the lead up to Oct. 2019, when cannabis ingestibles are set to become legal.
For The Supreme Cannabis Company, a licensed producer based in Kincardine, Ont., hemp-derived CBD products are less of a priority at this stage than developing the genetics and mastering the cultivation of cannabis flower high in CBD content.
“We are looking to roll something out in the flower market that’s a CBD product, it would be a CBD-strain that only we would grow,” said Navdeep Dhaliwal, the company’s president. “We are also assessing international opportunities for CBD products in Europe, which could be, for example, a CBD pre-rolled joint,” he added.
If CBD becomes one of the biggest priorities for a cannabis company in Canada, then going the hemp route is the cheaper option, argues Malik. “I think first of all, CBD should not be extracted from a marijuana plant because it’s just too expensive. It should be grown outdoors by a hemp plant at a dramatically lower cost, and then sold at a lower price than the CBD products you’re seeing on the legal market now.”
But transitioning into the hemp industry is no easy task. It requires, first of all, a large amount of capital, and, second, the know-how to farm hemp. “The vast majority of licensed producers have not taken on the challenge of outdoor growing in the hemp space because it’s broad acre agriculture, and requires a totally different skill set from growing in a greenhouse,” said Brett Halvorson, Chief Financial Officer of True North Cannabis Corp.
The company is based in Calgary — its business model rests on bridging the gap between hemp farmers and licensed cannabis producers looking to extract CBD from hemp.
“We go to industrial hemp farmers and collect their byproduct. So that’s the flower, leaves and stalk that they can’t use. We store, dry and refine that product, strip away any of the biomass which might include hemp grain, weeds and unnecessary flower, and sell the cleaner, high-potency biomass that contains CBD to the licensed producer,” said Halvorson.
(Hemp) requires a totally different skill set from growing in a greenhouse
Brett Halvorson, Chief Financial Officer of True North Cannabis
Halverson says True North currently has “active commercial relationships” with four licensed producers, and ties with about eight others.
He’s also bullish on the potential of the CBD market in Canada. “The CBD market is booming, and it’s short on extraction infrastructure. And then you see empty shelves in cannabis stores that — all that could be substituted with CBD from hemp.”
This October, the government plans to move ahead with its second phase of legalization — bringing cannabis edibles and concentrates to the domestic market for both medical and recreational use. When that happens, it means licensed producers will be allowed to significantly expand their product lines to include things like cannabis-infused drinks, or certain kinds of confectionary with cannabis in them.
When it comes to ingestibles, Malik believes products high in CBD content will soar in demand.
“CBD is a very subtle component and you can probably put it into a bunch of other products without scaring or freaking people out. Cannabis producers are going to be rushing to find hemp-derived CBD in 2020.”