Canadians turn attention to CBD

Analysis from HempToday, the voice of the global hemp industries.

Despite a mini-boom in hemp seed exports to South Korea that’s turning into a mini-bust, Canadian hemp stakeholders are still upbeat as they look forward to changes anticipated under a proposed new licensing regime for industrial hemp growers – and the promise it offers in the lucrative CBD market.

“Their (South Korea’s seed) market helped to partially clear a burdensome carry-over in 2016, but now that has improved so there is no need to discount the market,” Russ Crawford, President at the Canadian Hemp Trade Alliance (CHTA), told HempToday.

“We will return to the Can$100 million ($79 million) export mark for 2017 without much impact on our industry,” Crawford said, noting the hemp-hungry United States remains the biggest export destination for Canadian hemp seed, with about 90% of output going south across the border.

Canada exported a total of about Can$72 millon ($57 million) worth of hemp seed in 2015; with South Korea’s contribution of nearly Can$45 million ($35 million) in 2016, that figure jumped to Can$123 million ($97 million) last year, according to figures from Statistics Canada and CATSNET Analytics.

‘Korean bubble was real’

The Korean bubble was real for Canada,” another source close to the situation told HempToday. After a few Canadian pioneers entered the market in 2015, “many other Canadian companies rushed in to service the vast food market in Korea,” the source said, where telemarketing has created strong consumer demand for hempseed food products.

“The bottom fell out when the South Koreans realized that the Chinese have been churning out hulled hemp seed in tonnage quantities, and at less than half the net price,” our source said.

That’s left Canadian farmers sitting on a lot of seed inventory for the present, which could be a constraining factor in the growth of hemp fields next year. Fields under hemp in Canada last year were reported at 55,380 ha. (137,000 acres), while 681 commercial growing licenses were handed out, according to Health Canada figures.

Asia can still be seed export market

“The loss of that (South Korean) market hurts but it wasn’t the most profitable in any event,” CHTA’s Crawford noted. With shelled hemp seed trading for about Can$9/kg (in small retail units) in the USA, the South Koreans were buying bulk shelled seed for about Can$4 per kilogram from Canadian producers. Crawford said one South Korean buyer offered just Can$2 per kilogram for bulk seeds recently.

“This is not the kind of business anyone is interested in pursuing,” Crawford said.

Still Crawford said he sees seed exports developing in other Asian countries – Thailand, Taiwan, Japan and even China. “Australia and New Zealand will also be strong buyers of Canadian seed now that it is a legal product there. They can and will grow seed in Australia in the future but they can’t grow it as well as Canadian farmers can. Europe will also be a future buyer of Canadian hemp seed and products.”

Turning attention to CBD

Despite the downturn in demand for seed from South Korea, Canadian Hemp is not licking its wounds but turning its attention to the much bigger opportunity in CBD as the market looks forward to changes anticipated under a proposed new licensing regime for industrial hemp growers.

Part of a broader Cannabis Act covering both marijuana and hemp, the new regulations would allow farmers to sell hemp flowers and leaves – parts of the plant required to process CBD which have heretofore been illegal to harvest in Canada. The CHTA, farmers and even Canadian doctors have pushed for clear rules on CBD, citing the sector’s economic potential and the promise CBD has shown in treating certain maladies. Most notable, Canadian hemp proponents point to the U.S. CBD market, where sales are predicted to reach to $2-3 billion over the next 4-5 years. U.S. CBD product sales in 2016 were estimated at just $202 million, according to Hemp Biz Journal (USA).

Big players getting ready

Major players are already making moves in anticipation of Canadian marijuana and hemp rules changes. Ontario-based Canopy Growth, an incumbent licensed marijuana processor, recently announced the acquisition of Green Hemp Industries of Saskatchewan where it says it can eventually expand hemp fields to more than 2,000 acres. The company has said it will use an existing marijuana processing facility for CBD extraction.

Also, Australia-based Creso Pharma recently acquired Mernova Medicinal Inc., Halifax, in anticipation of developing a cultivation facility where it will grow plants for its neutraceutical products. Creso seeks to position itself as a leader in CBD for human edibles as well as animal food supplements.

Cannabis processing cartel?

Despite the optimism, hemp stakeholders and observers say they still see a need to push for fundamental changes that will truly open up the CBD market.

First, the Act as now drafted would require licensed growers of hemp to gain additional permits to process and market CBD, limiting the sale of flowers and leaves to the 20 or so Canadian companies licensed to process and sell CBD – primarily those that are already processing medical marijuana in Canada.

Limiting sales to a select group of processors will constrain farmer-sellers and constitutes “an extreme regulatory burden,” Kim Shukla, CHTA’s executive director, recently told Marijuana Business Daily. “It’s important that farmers are able to sell their crops however they choose, and that is not possible under this proposal,” Shukla said.

A ‘new normal’

American hemp consultant Richard Rose was more sharply critical. “It’s the new normal: California, Nevada and Canada all take CBD away from hemp and give it to the marijuana side,” Rose said. “That’s taking away 98% of the crop’s value, and it might mark the death-knell of Canadian hemp profitability in the world market.”

Also, despite the vast potential market in the USA, Canada’s proposed hemp rules do not specifically address CBD exports. That’s an issue stakeholders say they will push via a lobbying effort between now and the end of the 60-day comment period for the Cannabis Act, which some expect could go into effect next summer.