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HIGHLIGHTS
  1. Canada could miss out on U.S. demand for hemp-derived CBD
  2. Farmers’ association sees Canada as net exporter of industrial hemp
  3. Canadian LPs aim to establish foothold in North American hemp

Canadian farmers are on track to plant a record industrial hemp crop this year and boost CBD production, but expectations for increased output in the United States means that manufacturers south of the border may not need imports, causing some extractors to set their sights on European markets in instead.

The U.S. 2018 Farm Bill made the production of industrial hemp legal across the country, along with its byproduct cannabidiol (CBD), a non-psychoactive compound that is associated with health and wellness. This legalization - which does not include CBD extracted from cannabis plants at the federal level – raises the prospect for a boom in CBD sales, with many expecting the U.S. government will eventually allow the compound to be sold in health food and supplements.

But farmers and extractors in Canada may not benefit from surging CBD demand in the United States despite Canada’s first-mover status and, instead, may focus on opportunities in large markets in Europe. When Canada became the first G7 country to legalize recreational cannabis last October, hemp-derived CBD also got the green light, increasing the crop’s value and expectations for planted acres.

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“It will be a competitive market and there will be no need for products to be coming from outside of the United States,” said Geoff Whaling, chairman of the National Hemp Association in the United States.

“Now our farmers, manufacturers will have access to banking. People will really start to ramp up their markets.”

To be sure, hemp-derived CBD cannot yet be traded across the Canada-United States border, though some expect this will be permitted in the future as it is now legal in both countries.

Canadian companies appear to be securing footholds in both countries. Canopy Growth Corporation recently announced its first hemp harvest of 4,500 acres in Saskatchewan, which is expected to yield 7,000 kilograms of CBD. The company will also invest US$100-million to US$150-million to produce hemp in New York State.

Tilray Inc. said it aims to buy hemp-derived CBD from LiveWell Canada Inc. sourced in both the United States and Canada for North American distribution, subject to regulations.

“I’m almost certain that there will not be (CBD) importations. The U.S. will become self-sufficient quite quickly,” said Hess Moallem, chief executive officer of Colorado-based Charlotte’s Web Holdings Inc., which trades on the Canadian Securities Exchange and produces hemp-derived CBD for wellness products.

In 2018, Charlotte’s Web’s hemp harvest increased by 10 times to just over 300,000 kg in Colorado, Oregon and Kentucky.

“I don’t see any need to import. We’re not afraid of taking on more material and stockpiling for the future, or selling to other partners. We’ve had some interest from large names,” Mr. Moallem said.

“Our focus is going to be really here in the U.S. It’s going to be the biggest market in the world.”

If permitted, however, Charlotte’s Web would “absolutely” export to Canada, Mr. Moallem said.

Unlike most crops, hemp has multiple byproducts that increase its value, and before CBD legalization farmers already exported fiber and seed. In 2017, U.S. hemp imports were valued at US$67.3-million, with 90 per cent of this coming from Canada, according to a June, 2018, Congressional Research Service report.

Last year, for the first time, Canadian hemp farmers sold the plant’s CBD-containing flower to extractors. Researchers are racing to breed higher CBD-yielding plants for the burgeoning sector.

The Canadian Hemp Trade Alliance forecasts Canadian farmers will plant a record 150,000 acres in 2019 and 450,000 acres by 2023, up sharply from 80,000 acres in 2018 as CBD and renewable industrial uses increase the crop’s revenue streams.

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“We will be an export-oriented industry. Just like wheat, barley, canola; production capacity exceeds population demand,” said Ted Haney, executive director of the alliance.

And while the U.S. may become self-sufficient with regard to hemp supply, other factors including quality, competitiveness and service must also be considered, Mr. Haney said.

Products high in CBD make up more than 60 per cent of medical oil sales for New Brunswick-based Organigram Holdings Inc., which is only permitted to export CBD for medical purposes, CEO Greg said.

“In Europe, there is a significant nutraceutical CBD market. It’s yet to be determined if there will be opportunities to export to the U.S.,” Mr. Engel said.

“To begin with, we’re focused on the Canadian market. There has been an overwhelming response for CBD in the recreational market, which I don’t think anyone expected. A lot of people are turning to self-treatment with CBD.”

Mr. Engel sees “tremendous” near-term opportunities for CBD sales in Canada, Europe, and Australia.

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