Hemp in Trend, High-tech is Essential

Till January 2019, 41 countries worldwide have legalized the medical use of hemp, and more than 50 countries made CBD legitimate. Hemp has inevitably become a popular industry. Although China has not legalizing the application of hemp, Yunnan Province and Heilongjiang Province have obtained legal planting right for hemp, followed by Jilin Province.

Hemp is a 1-year-old herb of the cannabis family, and its main difference from marijuana is the content of THC. The THC content in marijuana is greater than 0.5%, with obvious mental activity and abuse tendency; while the content of THC in hemp is less than 0.3%, showing no psychoactive activity. There is also medical cannabis, which has a THC content between 0.3% and 0.5%, along with a low mental activity.

Hemp is a treasure, and the whole plant has economic value. Raw materials extracted from roots, stems, leaves, skins, flowers, seeds, etc. of hemp can be widely used in daily chemicals, materials, energy, medical, food and alternative petroleum. Although the progress of research and development varies from country to country, under the current technical level, a large number of downstream industries have been produced.

Since the United Nations enacted the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988, some countries have actively developed the hemp industry. In the past two years, many countries have gradually liberalized the use of hemp, mainly in the fields of medicine and research. Of the 41 countries that have declared the legalization of hemp and the 50 countries that legalized CBD, the United States and Canada are occupying the dominant positions.

CBD, also known as cannabisdiol, is the main value of hemp. It can hinder the effects of THC in human nervous system, and has pharmacological effects such as anti-caries, anti-anxiety, anti-inflammatory, anti-cancer and anti-depression. CBD is comprehensive applied in the USA, and various forms of CBD products were used to solve different problems.

Because CBD products can alleviate chronic pain and are safe, they may replace some opioids and prescription drugs in the future. Opioids are a class of prescription painkillers derived from opium poppy, including Codeine, Dihydrocodeine, Hydromorphone, Oxycodone, Methadone, Morphine, Fentanyl, and Dolantin. Opioids are the most harmful drug types in the world, and 70% negative health effects associated with them.

In addition to opioids, the CBD can also partially replace the use of alcohol, tobacco and illegal drugs.

Due to the multiple effects of hemp, the international hemp market is growing rapidly and the scale will continue to expand. At present, hemp market is mainly concentrated in North America. In 2017, sales of hemp in North America reached 9.2 billion USD, and in 2018 it reached 12.2 billion USD. The US hemp market is also growing in 2018 and is expected to grow 38% in 2019 to reach 16.9 billion USD, and is expected to exceed 47 billion USD by 2027.

Market size of CBD in USA is expected to reach 2.1 billion USD in 2020, of which 450 million USD will come from the extraction. Due to the widespread use of CBD in North America (including CBD oil, sugar, food, medicine, special-purpose cosmetics, etc.), CBD market in North America is expected to grow rapidly in the next five years. According to Brightfield Group's forecast, the global value of CBD industry will reach 5.7 billion USD in 2019, and maintain growth to reach 18.1 billion USD in 2021.

The fiery operation of the hemp market has ignited companies’ enthusiasm for entering, but not all companies have the ability to make huge profits in the hemp market. The criterion for evaluation is whether the company has a complete industrial chain: Self-owned planting, processing and sales channels are the guarantees for the company's future profitability. 

Tilray, Inc. is a wholly-owned subsidiary established by Dutch private limited liability company Decatur Holdings, BV (headquartered in Canada) in January 2018, specializing in the cannabis industry. After Tilray, Inc. IPO landed in Nasdaq in 2018, Decatur Holdings, BV became a subsidiary of Tilray. Tilray has a complete and profitable cannabis industry chain. According to recent annual reports, its revenue growth is rapid and its gross profit margin continues to increase, but it is still at a loss.

In order to reverse the losses caused by construction costs, research and development expenses, and marketing expenses, Tilray is currently undergoing industry adjustments to reduce primary processing and focus on high-end derivatives.

China's hemp industry still has a long way to go. Although China is the world's largest hemp planting country, it is rarely involved in the high-margin purification of the industry. Especially in the extraction process, it is difficult for Chinese companies to avoid patents registered in the early days by overseas pioneering companies such as Charlotte’s Web Holdings. The purchase of related patents or the development of patents require high costs, which makes most companies in China unable to enter the highly profitable hemp deep processing field.

The huge gap in seed CBD content (the US seed CBD content is basically six times that of China), not only requires enterprises to use more land for planting, but also increases the processing cost (extraction solvent and sewage treatment) by five times.

China's hemp is in the early stages of development and needs to find a direction for future development. In addition to medical CBD, the use of CBD for food additives is also very promising, and many retail giants have already “cross-border”.

In summary, although the concept of hemp is hot, it still takes time to make a profit, and it is difficult to obtain a return on short-term investment. Market demand, capital presence has promoted the development of hemp, but the risk of policy tightening, the technical barriers of CBD extraction, the utility and promotion of CBD, the unknown risk of CBD in the field of food addition, the risk of investing too much in the long pay period, risks of poor production, processing and sales operations still need to be vigilant.