Cannabis Makers’ New $16 Billion U.S. Opportunity

By Bill Alpert
Source: barrons.com

Photograph by Jan Woitas/AFP/Getty Images

Now that hemp is legal, analysts at Cowen & Co. expect the plant will grow into a $16 billion opportunity for companies like Canopy Growth Holdings (ticker:CGC), Tilray (TLRY), and the little tobacco product seller Turning Point Brands (TPB)—all stocks that Cowen already rates as Outperform. The broker has led the way among U.S. firms in covering cannabis, and Monday morning Cowen put out a 100-page report on hemp by 11 of its analysts.

Hemp is the cannabis cousin that contains cannabidiol, or CDB, but not the stuff that makes you high, which is THC (or if you must, tetrahydrocannabinol). In December, President Donald Trump signed a bill that removed hemp from federal narcotics prohibitions and allows states to regulate the product. That cleared the way for truckloads of consumer products containing CBD, which has analgesic and relaxing effects, but no buzz.

No other crop in the U.S. offers the return available from CBD, says Cowen agricultural analyst Charlie Neivert. “We would thus expect the country’s two largest crops, corn and soybeans, to lose some acreage to CBD hemp.”

CBD could be this year’s trendy ingredient, showing up initially in cosmetics and toiletries. The Canada-listed startup Green Growth Brands (GGB.Canada) recently announced a deal to open more than 100 kiosks to sell CBD products in Simon Property malls.

The hemp reforms in the just-signed 2018 Farm Bill were a vindication for the Boulder, Colo.-based CBD oil producer Charlotte’s Web Holdings (CWEB.Canada). But food, beverage, and nutritional supplements will still have to be careful in their marketing of CBD ingredients, says Cowen’s regulatory analyst Eric Assaraf. That’s because the U.S. Food and Drug Administration says it will continue to monitor any health claims made for the stuff.

Hemp offers a U.S. foothold for Canadian cannabis producers who have avoided sales here, where weed remains illegal under federal law. The ink was barely dry on the Farm Bill, when Canopy Growth announced plans to invest over $100 million in a New York state industrial park for making hemp products. And Tilray announced the acquisition of hemp-food producer Manitoba Harvest for $320 million in cash and stock.

Cowen notes that hemp is making a comeback in textiles, too. Four hundred years ago, hemp was grown for use in sails, ropes, and clothes, says Cowen’s John Kernan. Today, outdoorsy brands like Patagonia and prAna promote it, and hemp’s sustainable profile appeals to millennial and Gen Z consumers.

Hemp vs. Marijuana: What’s the Difference?

By Todd Campbell
Source: fool.com

Hemp and marijuana are just different enough for hemp to represent a huge market opportunity for marijuana stocks.

Marijuana stocks are soaring because of recent changes to how hemp is regulated in the United States. That's got everyone asking: What are the top marijuana stocks to buy in 2019? In order to understand the impact from hemp deregulation on marijuana companies, it's useful to understand how marijuana and hemp are different.

Same but different

Marijuana is the dried flower of the female cannabis plant, and it can come from either the cannabis indica or cannabis sativa species. Hemp is only a member of the cannabis sativa family.

IMAGE SOURCE: GETTY IMAGES.

Although marijuana and hemp can both come from the cannabis sativa family, they're distinctly different. Marijuana is bushier with broader leaves, while hemp is leaner with shinier leaves.

It's differences in their chemical composition that really set them apart, though.

More than 100 chemical cannabinoids are found in cannabis, but the amount of these cannabinoids differs dramatically between hemp and marijuana.

Marijuana's most common cannabinoid is tetrahydrocannabinol (THC) -- the chemical cannabinoid associated with the plant's psychoactive effect. In marijuana, THC levels can reach 30%, depending on the strain, but THC levels in hemp are less than 0.3%.

The low levels of THC in hemp mean that, unlike marijuana, it has historically been used for industrial purposes. Hemp's rapid growth and strong fibers made it ideal for crafting durable rope, clothing, sail, and paper.

Although hemp won't get you high, it does contain significant amounts of another cannabinoid, cannabidiol (CBD), which is also found in marijuana. CBD is a nonpsychoactive cannabinoid, and its interaction with receptors in the central nervous system and immune system can offer medicinal benefits, making hemp-CBD concentrates popular ingredients.

IMAGE SOURCE: GETTY IMAGES.

Why it matters

Medical and recreational marijuana use is legal nationwide in Canada, so it's home to the largest publicly traded cannabis companies.

In the past, those companies were unable to do business in the U.S. because of restrictions placed upon them by the major stock exchanges. In order to maintain their listing, they can't conduct business in countries where the sale of marijuana is prohibited at the federal level.

In 1970, the Controlled Substances Act classified all cannabis, including hemp, as a schedule 1 drug. As a result, hemp cultivation was tightly controlled and limited for industrial and research purposes.

That's no longer true. The U.S. Farm Bill that passed in December contains language distinguishing hemp from marijuana for the first time. It allows states and the U.S. Department of Agriculture to create a licensing program supporting the widespread cultivation of hemp with THC levels below 0.3%.

The shift in federal classification of hemp has already led to Canada's biggest cannabis company, Canopy Growth (NYSE:CGC), announcing plans to enter the U.S. market. After receiving a license to process hemp in New York state, Canopy Growth plans to invest up to $150 million there on a hemp-focused industrial park where it can develop products containing hemp-derived CBD.

Will hemp move the revenue needle for marijuana stocks?

Including black-market sales, the Canadian marijuana market is worth about $6 billion annually, according to Statistics Canada. Canada's recreational market only opened last October, so it's too early to know exactly how much of those black-market sales will migrate to legal shops selling products made by Canopy Growth and its competitors.

Nevertheless, the size of Canada's marijuana market dwarfs the current size of the CBD products market in America. Spending on CBD products in the U.S. only totals in the hundreds of millions of dollars per year.

The U.S. CBD market could grow significantly, though, if companies create increasingly valuable consumer products that they're allowed to distribute widely. The potential associated with CBD edibles, beverages, and other products has some industry experts thinking CBD-product sales could total exceed $20 billion someday. That's a heady forecast, but even if the CBD market only grows to a few billion dollars annually, it would still be a big tailwind for marijuana stocks, including Canopy Growth. After all, Canopy Growth's sales over the past 12 months totaled just $73 million. Given the size of the potential opportunity relative to sales today, it's little wonder that hemp's potential has investors excited about pot stocks.

 

Canopy Growth to invest up to $500 million in hemp production in U.S. states

By Zack Guzman
Source: yahoo.com

Canopy Growth (CGC) is planning to expand its investment in American cannabis.

The Canada-based cannabis company previously announced an investment of $100 million to $150 million to process and produce hemp in New York after securing a license from the state’s government officials in January. It now plans to increase the total investment in U.S. hemp to up to $500 million by adding hemp production in Rhode Island and two to three other states in the U.S., Canopy Growth CEO Bruce Linton told Yahoo Finance.

“We’ll do it state by state right now, because what has to happen is the state needs to regulate what is permissible for CBD,” Linton said. “So we'll probably have three or four states that have big populations and progressive leadership who want to have hemp become part of their actual job creation industrial platform.”

The move to invest in a hemp processing facility in New York represented the company’s first large push into cannabis extraction and processing outside of Canada. Now, the extended push into U.S. hemp production makes Canopy Growth one of the major companies focused on the space since the passage of the farm bill earlier this year made growing hemp legal at a federal level, though production oversight is still largely left to individual states to decide.

View photos

Canopy Growth CEO Bruce Linton stands for a photograph in the Mother Room at the Canopy Growth Corp. facility in Smith Falls, Ontario, Canada. (Photographer: Chris Roussakis/Bloomberg via Getty Images)

Hemp, the cannabis sister species to marijuana, is coveted for its relatively higher concentration of CBD, or cannabidiol, the non-psychoactive compound that can’t get users high like THC in marijuana, but is thought to alleviate a range of issues including anxiety and insomnia. CBD sales have steadily risen as use in creams, lotion, tinctures and even beverages have gained popularity. Brightfield Group, a cannabis industry research firm, estimates the hemp-derived CBD market will grow to become a $22 billion market by 2022, but that’s not all that interests Linton.

“When you think hemp, you should think about the protein, you should think about the fiber, and you should think about the CBD,” Linton said. “And so when you start covering all those categories, it doesn't take too long until you can see, ‘Wow there is a lot of potential yield on this.’ And so putting the money in means that you're actually creating an intent to be there for long enough to do the science and get the reward.”

Beyond the necessary sourcing of CBD for CBD-infused beverages or other products, the reward that comes with being a major hemp processor at scale could also leave Canopy with usable byproducts. One separate hemp-focused startup is currently using hemp waste to produce plastics for cannabis companies’ packaging. It’s unclear if Canopy has similar plans, but it would seemingly be an efficiency boost for a company that operates entirely through the production chain from seed to sale.

Becoming a leader in cannabis

Canopy has also been bolstering its position through acquisitions. The company bought Evergreen, Colorado-based cannabis research startup ebbu in November 2018 for $330 million and gained control of more than 40 cannabis-related patent filings.

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Canopy Growth CEO Bruce Linton (right) explains why hemp deserves the $500 million his company is prepared to invest in building cultivation centers in an exclusive interview with Yahoo Finance's Zack Guzman.

Canopy said the intellectual property it gained from the deal gave the company the potential “to vastly reduce the cost of CBD production.” Those cost savings could prove even more important as the company’s focus on hemp production becomes a more significant part of its business moving forward.