After the passage of the U.S. 2018 Farm Bill, which legalizes hemp production in the United States, Canopy Growth is reminding investors that it began adding strategic hemp assets to its portfolio in 2016.
CEO Bruce Linton issued a statement regarding Canopy’s intentional strategy of investing in the hemp opportunities over the last several years, citing the company’s “strategic acquisitions, infrastructure expansion, extensive internal research and development, strong supply of CBD, significant channel presence and intellectual property." Linton said thanks to the Farm Bill; the door is now open for Canopy to execute its considerable resources to move quickly in the global marketplace. Linton’s comments insinuate that the company plans to use much of the same playbook used to establish its Canadian cannabis market leadership. The company has every intention of driving the CBD industry forward to the benefit of consumers.
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Canopy’s early investments in hemp
Canopy Growth’s first foray into hemp investments was in the form of consumer-packaged goods. As the company began realizing the incredible market potential for hemp and CBD-based products, they began investing in the future, focusing on field-scale operations investments in 2017. The goal then was to mirror its existing cannabis business by vertically integrating its hemp business.
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Now, Canopy indeed can boast about its world-class hemp team – a team that has developed proprietary and patent-pending technological solutions for every aspect of the hemp harvest. In fact, Canopy is state-of-the-art in every step from breeding to extraction to product formulation and therefore is well positioned to quickly become an expert in the U.S. hemp market, helping American farmers with every aspect. Linton applauded U.S. lawmakers regarding the passage of the Farm Bill, describing it as a transformative piece of federal legislation that will pave the way for hemp-based products in the American marketplace.
In its first full harvest season, CGC harvested an astonishing 4,500 acres of genetically engineered CBD-rich hemp from its Saskatchewan operations. Using the company’s proprietary extraction processes, Canopy expects to yield around 7,000 kilograms of hemp-derived CBD.
Some market analysts are skeptical though because there is currently no market pathway for CBD derived from Canadian hemp to make its way to the U.S. markets. Canopy is not concerned, saying that the extracted product can be stored as long-term inventory while the U.S. figures out these regulatory paths.
A strong cash position
Canopy can afford to wait — for several reasons. While the U.S. sorts itself out, Canopy can instead focus their extensive expertise on other aspects of the entire hemp product cycle, and they can do that because they have a strong cash position, setting it apart from many other companies in the space. They can make strategic investments without diluting shareholders, and the company plans to use their cash to continue to invest in CBD product infrastructure, adding to the bevy of broad CBD product offerings they’ve already developed.
More recent moves have further strengthened Canopy Growth’s hemp position. Two months ago, in November 2018, Canopy acquired ebbu, a Colorado-based company that has grown to become a global leader in data-driven, lab-tested cannabinoid research.
With the ebbu acquisition came an extensive collection of IP, including 1500 inventions and 40 cannabis-related patents which naturally meld with Canopy’s established hemp and THC-rich cannabis genetic breeding program. They are also paired with DNA Genetics and Green House seeds, both cannabis breeding legends in their own rights.
The company is generally recognized as a world-class cannabis company. Canopy has operations in 13 countries across five continents, and is Canada’s leading licensed producer, having established supply agreements with every Canadian province and territory. Canopy has the trifecta any cannabis company would want.
First, they operate ten licensed cannabis production sites with over 4.3 million square feet of production capacity, including over 500,000 square feet of GMP-certified production space. Second, they operate the very popular Tweed retail stores, and third, they have great partnerships – not only with ebbu but with Snoop Dogg and Fortune 500 alcohol leader Constellation Brands.
The company is diversified in both cannabis and hemp, and well-known for its medical cannabis products from wholly-owned subsidiary Canopy Health, which has devoted millions of dollars toward state-of-the-art research and IP which Canopy fully intends to commercialize. Canopy Growth also works with the Beckley Foundation and together, they have launched Beckley Canopy Therapeutics to research and develop clinically-validated cannabis-based medicines. The company also offers the only medically-approved vaporizers and boasts robust clinical research and physician education program.
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Linton said that the hemp market position is a key piece to Canopy’s continued international expansion. The company recently announced plans specific to CBD and said it would be publicly unveiling several brands and products in the first six months of 2019. Their moves seem to indicate that CBD will shortly follow suit behind hemp, which will no longer be considered a controlled substance in the U.S. Hemp is now defined as an agricultural product; however, although hemp will be reclassified from its Schedule I status, the jury is still out on CBD, which is still not legalized. Regardless of whether CBD is derived from cannabis or hemp, it remains Schedule I. The industry is waiting with bated breath to see if the federal government reschedules CBD that is specifically derived from government-approved hemp as it pertains to the Farm Bill passage. It appears that Linton and Canopy are betting that it will.