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Demand for cannabidiol in the United States is on the cusp of increasing exponentially after lawmakers there agreed in principle on the 2018 Farm Bill that would federally legalize hemp-derived CBD and open the door for companies to sell into a population nearly nine times that of Canada.

On Thursday, U.S. lawmakers struck a deal in principle on a Farm Bill that includes federally legalizing industrial hemp, potentially creating a catalyst for large Canadian LPs to enter the market south of the border to tap into what one researcher forecasts could quickly become a nearly US$22-billion industry. Industrial hemp cannot contain more than 0.3 per cent of THC, the psychoactive compound found in the plant.

The addition of hemp to the bill could mean hemp-derived CBD products could be sold in grocery stores and pharmacies, analysts said.

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“We believe several of the larger Canadian LPs intend to enter the U.S. CBD market following passage of the bill,” BMO Capital Markets said in a note. “We anticipate that such an expansion by Canadian LPs will likely require a robust M&A strategy and significant capital.”

Canadian LPs would need to develop an entire supply chain, including hemp cultivation extraction capabilities, distribution channels, and brands, BMO said.

Market researcher Brightfield Group has forecast this could lift the U.S. hemp-derived CBD market to a value of US$21.9-billion by 2022, up from US$300-million in 2017.

Though hemp is already legal in about 40 states, largely driven by CBD demand, federal legalization will allow it to cross state borders. Hemp can also be processed into fibre, food, animal feed, and oils.

“It moves CBD into the food and natural health product world, and not into the drug and pharmaceutical world. That provides some very specific competitive advantages to the U.S. industry as compared to Canada,” said Ted Haney, executive director of the Canadian Trade Hemp Alliance.

“It takes some of our first mover advantage away,” Mr. Haney said, referring to Canada being ahead with cannabis legalization last month.

Since the U.S. licensing system will place hemp under the food rather than drug sector, upstart costs will be lower, Mr. Haney said.

In Canada, products containing CBD must abide by the Cannabis Act and can only be sold by licensed producers and retailers. It is illegal to sell CBD in food or natural health products in Canada.

“We are advocating for a re-regulation as Health Canada begins their public consultations on the edible environment. We also want re-regulation of hemp-derived CBD in that same consultation,” Mr. Haney said.

“We believe at lower intake levels that CBD should be registered as a food ingredient to be allowed in energy food and other food products that will be sold at retail, like supplements. We need that prohibition lifted in Canada.”

If the Farm Bill is signed into law, it would open up a wave of investment and development ranging from hemp cultivation to product development and retail, said Altacorp Capital in a note.

“A number of U.S.-based companies within the industry who already focus exclusively on hemp-derived CBD products, are expected to benefit significantly from the likely passage of the Farm Bill, which would open up their ability to market their brands across the country,” Altacorp said.

Companies it sees benefiting from the new bill include Charlotte's Web and Isodiol International, as well as those focused on CBD-infused beverages such as Phivida and The Tinley Beverage Co, Altacorp said.

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“We expect that with the proliferation of hemp farming, and likely ample access to outdoor grown supply, many cannabis-focused (THC) businesses will launch hemp-infused product lines to compete in this burgeoning category,” Altacorp said.

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