Hemp-derived cannabidiol (CBD) companies could be the next big thing in the Canadian cannabis stock space
Maxim Medvedev| September 10, 2018 | SmallCapPower: The recent rise of the Canadian cannabis market has brought a lot of investor attention to licensed producers of the cannabis flower. A lesser-known, non-psychoactive compound found in the marijuana and hemp plants called cannabidiol (CBD) has many more medical applications than the other well-known compound, tetrahydrocannabivarin (THC), which is usually associated with marijuana. In this article, we explain what hemp-derived CBD is, why it is unique, its wide range of applications, and a list of a few CBD-focused companies that may be appropriate for investors depending on your risk tolerance.
Cannabidiol (CBD) is one of the 113 compounds found in cannabis, and it is the second largest cannabis compound, usually making up approximately 40% of the plant’s extract. Tetrahydrocannabivarin (THC) is the principal component, which makes up roughly 54% of the extract.
THC is the chemical responsible for marijuana’s psychoactive effect. It attaches itself to the cannabinoid receptors in the user’s brain, impacting areas associated with memory, thinking, pleasure and time perception. THC also stimulates the brain to release dopamine, causing euphoria. Importantly, THC provides additional medical benefits by reducing nausea and pain.
In contrast, CBD does not produce psychoactive effects, and it has been shown to have medicinal benefits in a variety of health conditions, ranging from chronic pain to terminal diseases. The CBD molecule is particularly effective at reducing inflammation, pain, anxiety, psychosis, seizures, spasms and to aid in the treatment of multiple neurological disorders, such as arthritis and multiple sclerosis. Ongoing research has hinted at additional healthcare applications and possible anti-cancer properties.
The current debate surrounding CBD is whether governments around the world will acknowledge it as a medical substance or a dietary supplement. If it’s considered a dietary supplement, then hemp could become a freely-available component, consumed daily by millions of people. However, if it is acknowledged as a medical substance, then access to it will be far more regulated and restricted. Presently, there are 56 counties where hemp CBD is legal, with some notable nations such as Canada, United Kingdom, Russia, Canada, United States. Currently, hemp CBD is already legal to import and purchase in 50 U.S. states.
CBD oil derived from hemp does not have a psychoactive effect on the user and has been shown to be safe for all ages due to its low THC levels. Coupled with its tremendous health benefits, governments are moving in the direction to expel it from the Schedule 1 drug list. In fact, certain organizations have liberalized their stance to CBD already. For example, the World Anti-Doping Association lifted its ban on hemp-based CBD and the World Health Organization has acknowledged CBD’s clinical benefits. According to The Hemp Business Journal (as reported by forbes.com), the CBD market is expected to grow to $2.1 billion by 2020.
Hemp CBD Oil
CBD oil can be extracted from hemp or marijuana, which are both parts of the cannabis plant. However, hemp and marijuana vary drastically in terms of their use and chemical makeup, resulting in the source of extraction being an important factor in processing and/or industrial applications. When CBD oil is extracted from marijuana, it generally comes from the flower’s trim. Trim is collected after a harvest, by isolating the bud of marijuana from its sugar leaves. This is done to increase the THC gram-for-gram as the leaves have a significantly lower THC level. Currently, CBD that is derived from hemp comes from hemp seeds, however as cannabis get legalized, processors are expected to utilize the whole plant more regularly.
Hemp is derived from Cannabis Sativa L, same as marijuana. Hemp can be distinguished from marijuana by its limited psychoactive component, which contains only 0.3-1.5% THC. Marijuana on average contains 5-20% THC, with premium marijuana containing up to 35%. However, hemp does have a substantial CBD content, which negates any psychoactive effects of the minimal THC content found in hemp. Today, hemp is used primarily to create hemp-derived products such as oils and isolates for nutraceuticals and body care.
Throughout hemp’s history it has had a diverse range of uses outside CBD oil. Hemp has an extensive history dating over 2,000 years where it was used in the production of paper. In fact, it is said that the first copies of the Bible were made of hemp paper. It was only in the 19th century that civilizations starting using wood as the input for paper. Hemp’s fiber use expands further into a variety of construction materials, plastic and clothes. Hemp can also be a source of biofuel in the form of biodiesel knows as “hempoline.”
CBD Isolate is a crystalline powder that is considered “pure” CBD, comprised of 99% of the molecule or higher. The two most common production methods to extract isolate are CO2 and ethanol. Other CBD derivative products, such as “full-spectrum” oils, contain a mixture of CBD and other compounds found in the cannabis plant in various quantities. The variety of compounds can either be naturally found in the “full-spectrum” production process or are intentionally added back into the oil to create a synergetic effect between CBD and other terpenes (aromatic oils that enhance the effect of cannabinoid). In many over-the-counter products, CBD often accounts for ~90% of the cannabinoid content. Other components include cannabidivarin (CBD-V), cannabigerol (CBG), and more than 200 varieties of terpenes.
There are other compounds other than CBD that have potential to be more effective, such as CBD-V and CBG. These are also compounds found in cannabis and their chemical composition differs from CBD only by one or two chains. As they are homologues of CBD they share the same characteristics but have a slight variation in medical application. However, these compounds are extremely rare. CBG, in particular, is the most abundant compound, making up less than 1% of the compounds found in the early stages of the cannabis-growth cycle. Hemp, of course, contains the most CBG, which is a precursor to most CBD, however, since it is the rarest compound, it is expensive to extract and there is limited research completed. A handful of trials on mice have demonstrated that CBG is capable of fighting breast cancer and delaying colon cancer, in addition to being a powerful treatment of other psychosis.
Canadian Hemp Space
Since March 1998, Canada has had a licensing system for the cultivation and processing of industrial hemp for commercial purposes. That year, Health Canada issued licenses to 259 farmers to grow hemp on 6,000 acres. By mid-1999, that number had grown to 674 licenses and 35,000 acres. The Industrial Hemp Regulations (IHR) enables farmers to grow low-THC cannabis solely for industrial use. With the IHR license, a cultivator is permitted to produce hemp derivatives as long as the sprout, leaves, flowers, and bracts of the plant are excluded from the production process. The cultivator is limited to using only hemp seeds for production of hemp derivatives and the final product must contain no more than 10 micro g/g THC.
On June 19, the Canadian Senate vote passed Bill C-45 for the Royal Assent. This provides the hemp industry with a variety of revenue streams to be utilized that previously were not available. The change in the legislation will permit hemp cultivators and processors to utilize the entire crop of the industrial hemp, rather than just the seeds, allowing for a new range of products.
Isodiol International Inc. (CSE:ISOL) – $3.59
Isodiol International is a Canada-based company specializing in the production of pharmaceutical and consumer products. The Company has been focused primarily on CBD oils nutraceuticals that are derived from hemp. In April this year, the Company’s CBD was certified by the Medicines and Healthcare Products Regulatory Agency (MHRA) as an Active Pharmaceutical Ingredient (API), which allows them to focus beyond nutraceuticals, specifically into pharmaceutical drug development and clinical trials. Isodiol manufactures over 30 different products using 99.5%+ purity pharmaceutical-grade cannabinoids and distributes them domestically in North America and internationally. Their diverse product portfolio including beverages, clinically proven anti-aging skin care and nutraceuticals.
Isodiol’s current production facility in the Yunnan province of China has production capacity of 2,000kg CBD oil/year. The THC-Free CBD oil then gets exported to their UK GMP facility, which refines the CBD molecule to a purity of 99.5%+. Additionally, the Company is constructing what it believes to be the world’s largest CBD production facility, in Yunnan, which is expected to be up and running by Q1/2019 and have production capacity of 20,000kg of CBD-oil/year. The initiative to increase production is part of Isodiol’s expansion strategy, as they increase their presence in over-the-counter and pharmaceutical drugs, whilst pursuing international expansion into Latin America, Asia and Europe.
In an effort to expand its management team, grow its brand awareness, and escalate their growth in sales, Isodiol has executed numerous acquisitions and licensing agreements with companies in the medical and cannabis industry.
- Market Cap: $117.9 Million
Canopy Growth Corp. (TSX:WEED) – $67.85
Canopy Growth Corporation is a diversified, multi-brand cannabis and hemp company, offering distinct brands and curated cannabis products with varieties in dried, oil and soft-gel capsule forms. In the past year, the WEED has sold 6,200 kilograms of cannabis products to the Canadian medical market. The Company also acquired the necessary agreements to export medicinal cannabis to Australia, Brazil and Germany. To position itself in the Canada’s recreational market, Canopy Growth has secured agreements with the Provinces of Quebec, Prince Edward Island, New Brunswick, and Newfoundland & Labrador to supply their adult consumer market with high-quality cannabis. WEED has the largest licensed production platform in Canada, with over 600,000 sq. ft. of production space. To further solidify their leading position in the market, Canopy Growth expects to have up to an additional 5,000,000 sq. ft. of production over the next 12 months.
Canopy Growth, through its acquisitions, also diversified its cannabis business into the development and sale of hemp-based products. Canopy has access to the growing market for consumer food and skincare products through its acquired subsidiaries Mettrum and Group H.E.M.P. CA.
In addition, in January 2018, Canopy Growth completed its acquisition of Green Hemp Industries Ltd. a whole-plant hemp harvester, aiming to position itself as a low-cost leader. Canopy’s field operations, located near Hagen, Saskatchewan, are ready to scale from 600 acres in 2018 to 2,500 acres in 2019. To support this growth, custom built extraction infrastructure will be installed at the facility in Yorkton, Saskatchewan. Management believes that the logistical advantages of having its hemp production and processing in the same location/province should improve the efficiency of its CBD supply chain.
- Market Cap: $7,386.4 Million
Hempco Food and Fiber Inc. (TSXV:HEMP) – $1.38
Hempco Food and Fiber is a producer and distributor of hemp-based products. Hempco currently has a 56,000 sq. ft. processing facility in Nisku, Alberta, producing hemp-based foods. With the passing of Bill-C45, Hempco plans to utilize the stalk of the hemp plant as a fiber source for industrial building and textile uses. In 2019, Hempco expects hemp production capacity of 240,000 lbs/month. Currently, 8% of Hempco’s revenue is generated from hemp supplements for pets with the products distributed across 1900 pet stores in Canada. Another 11% of the revenue comes from hemp-based foods and nutraceuticals, which are sold in more than 70 stores in Canada. Its products are also distributed in 1,200 retailers in the UK and sold on Amazon, reaching 30 other countries. The main 80% of its revenue is driven by the bulk product. Hempco’s partnership with Aurora Cannabis provides Hempco with an experienced and stable shareholder who will advise them on their networks and corporate developments.
- Market Cap: $81.0 Million
Global Hemp Group Inc. (CSE:GHG) – $0.15
Global Hemp Group is a Canada-based company with operations in Montreal and Los Angeles. Currently, Global Hemp Group is completing its hemp cultivation projects in New Brunswick, Canada and Oregon, and the United States. The next phase of its business is the development of value-added industrial hemp-based products through the Hemp Agro – Industrial Zone partnership. The current Oregon facility has five greenhouses for cultivation that are a total of 20,000 sq. ft. and CBD yield is being maximized at the facility through the additional 20,000 hemp clones being installed. The northwest New Brunswick facility has 125 acres of space for hemp crop cultivation and is capable of primary and secondary processing. The facility is expected to begin cultivation in H2 2019 and 4,000 sq. ft. of the facility is expected be used for extraction.
- Market Cap: $22.6 Million
Tinley Beverage Company Inc. (CSE:TNY) – $0.81
Tinley Beverage Co. is an American producer of cannabinoid beverages. Through its Hemplify brand, Tinley sells CBD infused alcohol and tonics for casual consumer use. Its premium mixed liquors and cocktails can be found in grocery and convenience stores throughout California. Hemplify uses a proprietary technology to enhance protection and absorption of hemp extracts from its beverages. This results in a more potent drink, with a more predictable CBD uptake. The Company’s hemp is sourced from Europe.
- Market Cap: $56.3 Million
MYM Nutraceuticals (CSE:MYM) – $1.22
MYM Nutraceuticals is cannabis producer with operations in Canada and Australia. The Company has two production projects in Quebec, Canada, which will have production space of 1,537,000 sq. ft. in total upon completion in 2020. The combined production capacity is estimated at 187,000 Kg of cannabis annually. MYM also has a production facility of 1,200,000 sq. ft under development in New South Wales, Australia. Its MJT manufacturing project, located in Toronto, is focused on the production of CBD extracts and isolates. The Company’s portfolio brands include CBD products such as HempMed, Joshua Tree and Dr. Furbaby.
- Market Cap: $124.9 Million
Friday Night Inc. (CSE:TGIF) – $0.41
Friday Night Inc. operates cannabis and hemp-based assets in Las Vegas, Nevada. The Company owns 91% of Alternative Medicine Association, LC, a licensed cultivator, producer and developer of cannabis-based products. The Company also has a 91% stake in Infused MFG, a hemp-based CBD producer. Friday Night has a 12,000 sq. ft. cultivation and production facility and a 5,000 sq. ft. CBD infused production facility. The Company plans an expansion of 67,000 sq. ft. and has already purchased more 5 acres of land in Las Vegas for future expansion.
- Market Cap: $89.5 Million
Medical Marijuana Inc. (OTCMKTS:MJNA) – US$0.10
Medical Marijuana Inc. is a CBD consumer product company based in Poway, California. In addition to producing CBD infused oils and consumables, the Company offers support services for the medical marijuana industry, such as management expertise and shipping arrangements. In doing so, the Company hopes to advocate for further legalization throughout the United States by reducing crime and incidents around the cannabis industry. Medical Marijuana Inc. boasts the title of the first publicly-traded cannabis company in the United States and claims to be the first company to establish a global CBD pipeline for its supply chain.
- Market Cap US$160.7 Million
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