As the marijuana market continues to grow, hemp and cannabidiol (CBD) are occupying an increasingly large share of the escalating industry.
- Hemp, the form of cannabis without psychoactive tetrahydrocannabinol (THC), is an important part of the cannabis market.
- Hemp is common in many health and wellness products.
- Total sales of hemp-derived products are expected to exceed $1 billion this year.
- Some industry experts expect hemp products to soon exceed marijuana for their share of the cannabis industry.
Sugarmade, Inc. (OTC: SGMD) (SGMD Profile) is taking advantage of this shift by making a heavy investment in hemp production. Medical marijuana company Tilray, Inc. (NASDAQ: TLRY) bridges the gap between product types through its production of CBD oils. One of the largest cannabis growers in Canada, Canopy Growth Corp. (NYSE: CGC) provides plants used in a wide range of products. GW Pharmaceuticals Plc (NASDAQ: GWPH) has created the first cannabis-derived prescription drug approved by the U.S. Food and Drug Administration. Meanwhile, public acceptance and more positive perception of the cannabis sector are shifting, thanks at least in part to publicity efforts by shifted by cannabis companies such as Aurora Cannabis, Inc. (OTC: ACBFF) (TSX: ACB).
The Two Sides of the Marijuana Market
It’s all too easy to view the cannabis sector as a single market providing variations on the same product. In reality, it’s an increasingly complex and varied industry. Its primary plants and products can be divided into two groups: marijuana (and THC) in one category, and hemp (and CBD) in the other.
The marijuana piece of the cannabis market is the one more traditionally recognized. In this space, plants grown, cultivated and used contain THC, the psychoactive ingredient that gets drug users high. THC is the reason for cannabis’ ongoing popularity as a recreational drug worth hundreds of millions of dollars in both legal and illegal markets.
The other side of the market is centered around hemp. Hemp does not contain THC; rather it contains CBD, an active ingredient found in other cannabis plants. CBD has fueled the development of medical marijuana applications, but alternative products that utilize the substance are increasingly popular in the health and wellness markets, where they can be bought more widely than medical marijuana. As a result, some industry experts note that hemp may soon make up the larger part of the cannabis industry.
The Growth of the CBD Market
Though less well-known outside of specialist markets, CBD is becoming a more accessible way to benefit from cannabis. This has led to investment from companies across the cannabis sector, including Sugarmade, Inc. (OTC: SGMD).
Sales of hemp-based products in the United States reached $820 million last year, of which $190 million, or 23 percent of sales, consisted of CBD-derived products, according to Hemp Business Journal. That total for hemp is expected to pass a billion dollars this year.
Predictions for the future are even more promising. The same Hemp Business Journal article estimates that the hemp market will reach $1.9 billion in the United State by 2022, with $646 million of that coming from CBD and its derivatives. The Brightfield Group is even more optimistic in its assessment. The group’s industry specialists believe that CBD could outstrip the rest of the cannabis sector in size in the next few years.
For companies such as Sugarmade, whose business is closely tied to CBD, these developments create opportunities for expansion and innovation.
CBD Enters the Mainstream
A wide variety of end-use product potential is helping hemp gain mainstream use and acceptance. This market includes supplements, personal care products, textiles, and food and industrial applications, as well as CBD and the support services provided Sugarmade and other similar companies.
The hemp market has grown 15 percent per year over the past few years. Unlike marijuana sales, this growth isn’t driven by the medical and recreational sectors. Instead, body products and supplements have been key factors. Much of the hemp for these products has been imported from Canada and China, with imports totaling $78.2 million in 2015, not counting textiles, paper products or construction materials.
The hemp market is expected to be strengthened by the2018 Farm Bill currently making its way through the U.S. Senate. Legislation included in the act, supported by the Senate majority leader, would remove industrial hemp from the Controlled Substances Act, making it easier for farmers to grow hemp for CBD and other agricultural purposes. Since the last farm bill was passed four years ago, some farmers have been able to legally set up test production of hemp for CBD, but widespread cultivation has not been permitted.
The extent of the change permitted by the expected agricultural law remains uncertain. Other issues unrelated to cannabis are currently holding up the Farm Bill, despite widespread bipartisan support for the hemp provisions. Once the bill passes, the impact for CBD will also depend upon decisions made by state authorities and the FDA. But the bill will certainly ease the way for potential hemp growers in states that support the CBD industry. Until now, national law only allowed the growing of hemp and harvest of CBD in state pilot programs and for academic research; in the 2018 Farm Bill, those limitations are eliminated.
Clearly, The legalization of hemp and CBD on the federal level will only benefit companies such as Sugarmade. Previously, access to financial and support services could be difficult for companies working in the cannabis sector. Marijuana retailers had to resort to cash payments or newly developed electronic systems because banks feared doing business with companies defying federal law. Making hemp legal will allow a wide variety of support systems to evolve.
Innovating With CBD
The success of companies such as Sugarmade that are working in the CBD space comes in large part through innovation. These companies recognize the need to research, offer, and implement new products, services and investments to drive growth.
New products will take CBD into new commercial categories. Hemp-derived beverages and pet foods are both on the horizon. Medicines are being tested. Paper, cloth and construction are also industries that stand to benefit from additional hemp offerings.
Sugarmade’s success comes through expansion in hydroponics, the company’s entry into the cannabis space. Hydroponic equipment is key to cultivating cannabis and, as a result, hydroponic companies have seen substantial growth over the past few years. Sugarmade is building upon its existing growth by acquiring two other hydroponics companies, a move that turned the company into one of the leading players in hydroponics. This move is also expected to raise Sugarmade’s revenues next year from $30 million to $75 million as the market for hemp and its support services grows.
Sugarmade has also reinforced its position in the market through more direct investment in CBD. The company recently committed to investing a million dollars in Hempistry, Inc. The investment is targeted to support Hempistry’s work on an ultra-high CBD-content hemp strain being grown in Kentucky. It also positions Sugarmade to profit directly from the staggering growth in CBD.
The impact of the hemp industry extends beyond the United States. Sugarmade has made moves into Europe as well, selling hydroponics in the United Kingdom. While the current hemp market in Europe is small, savvy companies are evaluating opportunities to get in now. Where America leads, Europe is likely to follow, which means the road towards legalized cannabis and a thriving CBD market may be imminent.
A number of companies are competing for a share of the CBD market.
For medical marijuana company Tilray, Inc. (NASDAQ: TLRY), CBD is a natural extension of its other work. The company has developed CBD oil for medical use and is one of the first to sell such a product into the United Kingdom after top politicians intervened to make CBD available for treating rare childhood forms of epilepsy. A strong program of research and development has led to growth for the company, which is now making initial public offerings in the United States and Canada to finance further work.
Canopy Growth Corporation (NYSE:CGC) is one of the largest cannabis companies in Canada, a leading market for cannabis and CBD. With 5.6 million square feet of growing space spread across its facilities and subsidiaries, three-quarters of it licensed by Canadian authorities to grow cannabis, Canopy Growth has become a powerhouse within the industry and is breaking new ground for cannabis companies, having completed the first legal transfer of cannabis from Canada to the United States using a DEA-issued permit. This transfer, for medical research purposes, seems to reflect a softening of DEA attitudes as the agency adjusts to the changing status quo.
Medical cannabis research is also important to GW Pharmaceuticals Plc (NASDAQ: GWPH). The company created the first cannabis-based prescription medicine to gain FDA approval and continues to innovate through its research and product divisions. Like Tilray, the company is committed to growth, having recently announced new shares to raise $300 million of finance.
Aurora Cannabis, Inc. (OTCQX: ACBFF) (TSX: ACB) isn’t just selling its own CBD-rich health and wellness products – it’s also working to raise the public profile of the cannabis industry. It has partnered with Elevate, the annual citywide Toronto festival, to create tracks discussing cannabis and health issues. These events will encourage discussion about the health potential of CBD and marijuana, as both sides of the industry continue to gain in size and public recognition.
The cannabis industry has seen huge growth over the past decade, and now it’s going through big changes. Commercial CBD and hemp, until recently existing in the shadow of medical cannabis and recreational marijuana, could soon be the leading products in a growing global market.
Source: 420 Intel
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