With the hemp industry in the United States on the verge of fundamental reform, several of Canada’s largest marijuana companies appear poised to enter the U.S. cannabidiol market.
Yesterday, the House of Representatives voted to approve the 2018 Farm Bill, which removes hemp derivatives, such as CBD, from the Controlled Substances Act (CSA), and amends five other acts, opening the door for hemp to become an agricultural crop. The Senate approved the bill the day before. All that remains now is for U.S. President Donald Trump to sign the bill into law.
To date, TMX Group rules against participating in federally illegal businesses south of the border have prevented Toronto Stock Exchange-listed companies from playing in the U.S. CBD market. Once hemp-derived CBD is removed from the CSA, hemp and CBD investments will be fair game.
Here are some of the TSX companies set to benefit from the change.
Village Farms International, Inc.
The most obvious U.S. hemp-derived CBD play is Village Farms, an established vegetable grower with more than 100 acres under greenhouse in Texas. The Delta B.C.-based company entered the cannabis industry in 2017 through a partnership with Emerald Health Therapeutics Inc. It’s one of only two Canadian companies (Isodiol International Inc. is the other) represented on the board of the U.S. Hemp Roundtable, an industry lobby group.
"We would probably produce hemp in the field, and to a degree, inside,” Michael DeGiglio, CEO of Village Farms, told Cannabis Professional in a recent interview.
"Greenhouses will have a role – although not as much as a field for pure CBD-hemp – only because there will be pharmaceutical companies that want to grow in a controlled environment, want to make sure there's no pesticide use, no toxicity, that you're growing it sustainably, like we do with vegetables, not using soil,” he said.
The company won’t switch wholesale from vegetables to hemp, but it plans to “supplement where we can," Mr. DeGiglio said.
Canopy Growth Corp.
Canopy has been experimenting with field-scale hemp-derived CBD in Saskatchewan. In October, the company paid more than $400-million in cash and shares to acquire Colorado-based ebbu, Inc., a hemp research company.
"Ebbu has a very interesting genetics database… [with] proprietary hemp strains with high CBD concentrations, that could probably generate very high yields," said Martin Landry, an analyst with GMP Securities L.P.
Because Constellation Brands-backed Canopy is approaching the U.S. cannabis market through a legally complex web of partners and subsidiaries, it is difficult to tell exactly what hemp assets it has lined up. It has secured the option to buy at least one large greenhouse in California, according to co-CEO Bruce Linton, although it’s not clear whether this would be for cannabis or hemp production.
In a recent conversation with Cannabis Pro, Mr. Linton hinted that the company has also acquired “extraction related assets” currently being used for other crops in the U.S. Canopy could convert these to hemp extraction.
Canopy Rivers Inc.
Canopy Growth’s partly owned subsidiary and venture capital arm has several partnerships that could springboard it into the U.S. hemp market. Most notable is PharmHouse Inc., a joint venture between Canopy Rivers and Ontario greenhouse grower Paul Mastronardi, chief executive of Sunset-brand vegetable grower Mastronardi Produce Ltd.
The JV is focused on a cannabis greenhouse in Leamington, Ont. to begin with. However, the partners have signed a non-competition agreement stating that any greenhouse Mr. Mastronardi converts to cannabis in the U.S. or elsewhere will happen in partnership with Canopy Rivers.
“Instead of going to Peru or Guatemala or places in Europe… [or the] U.S. and Mexico, and scouring the land for greenhouses, we actually have a partner ... that can identify channel partners, contractors or specific assets that can be put into the 49/51 per cent joint venture,” said Daniel Pearlstein, executive vice president, head of business development at Canopy Rivers.
Both Canopy Growth and Canopy Rivers have stakes in LiveWell Canada Inc. Last week LiveWell announced a merger with Vitality CBD Natural Health Products Inc., a company that has CBD extraction assets in Montana and New Mexico.
In Tilray’s most recent quarterly earnings call, CEO Brendan Kennedy suggested that the company was ready deploy large amounts of capital into the U.S. should the Farm Bill pass.
Tilray, which is sitting on over $500-million in cash, is better positioned than its U.S. multi-state competitors to take advantage of hemp reform, Mr. Kennedy said on the call.
“When federal law changes in the U.S. … they’re going to have all of these cultivation facilities licensed in all of these different states and companies such as ours would deploy massive amounts of capital in one single location or two single locations in one or two states and quickly move that product from state-to-state,” he said.
Cronos Group Inc.
Flush with $2.5-billion from cigarette maker Altria Group, Inc., Cronos seems well positioned to enter the U.S. hemp market. While company has not declared any U.S. assets to date, “Altria provides Cronos with a pretty large rolodex of farmers to reach out to," said Mr. Landry of GMP.