Cannabis Operators Look To Hemp For Diversification
It is no secret that the medical and adult-use cannabis industry is built on a landscape that is constantly shifting due to changing rules, laws, and regulations. By many measures, the legal cannabis industry in the United States is still in its infancy, and as it evolves it will experience various setbacks that can be extremely frustrating for entrepreneurs and investors, and in some cases, put entities out of business if they don’t anticipate and navigate the changes properly.
Building a cannabis company that is focused on high-THC products is not for the faint of heart. Recently Med Men, Gurpo Flor, Eaze, and Pax have faltered and announced significant layoffs. Worse, high profile bankruptcies, including the Canadian pubco DYME, have begun to surface and are expected to increase as the year goes on.
In addition to dealing with changing and oftentimes less-than-desirable policies that pertain to high-THC operations, the field is also crowded, and over taxed. All of this has led to a ripple effect of non-payment of receivables, the latest prevailing byproduct of a broken system. And cannabis is still federally illegal, which comes with a whole host of its own issues to overcome, such as simple banking.
Hemp, on the other hand, was legalized at the federal level via the signing of the 2018 Farm Bill. The hemp plant, which is defined as containing .3% THC (dried weight), is considered to be a legal agriculture crop by the federal government now, albeit with heavier regulations than other crops such as corn or wheat. Federal prohibition toward public policy regarding the cannabis plant is a massive cluster, in that hemp is cannabis, and the continued federal prohibition of non-hemp is now even more ridiculous than it was previously. Regardless, the situation is creating an opportunity for cannabis operators.
The rules that govern hemp cultivation are far more favorable than those that govern non-hemp cultivation. Whereas a grower in a legal adult-use state like Oregon has a strict canopy limit on the size of their THC garden, farmers in Oregon can, and do, cultivate hemp fields that measure in the dozens or even hundreds of acres. This is true in other states as well. To a cultivator that is limited to square footage canopy for high-THC cultivation, being able to cultivate over 1,000 acres of hemp is an enticing option and a great way to diversify their operations.
Farming hemp at a large scale requires a different supply chain and massive infrastructure and logistics. Oakland’s Wagner-Dimas has pioneered large-scale production of cannabis pre-rolls by licensing their patented tech to producers in the U.S. and Canada. Now they are adapting that technology to supply a growing new product category: CBD hemp cigarettes. Between smoking for pleasure or smoking alternatives for nicotine cessation, hand-rolling and off-the-shelf manufacturing solutions just won’t keep up with growing demand for convenient smokable CBD flower. Brands like LVL Hemp have demonstrated how quality smokable CBD hemp can be crafted at scale to meet demand.
“We looked hard at hemp when it became evident that the Farm Bill was going to pass,” says Dean Arbit, CEO of Wagner-Dimas. “We saw that our tech and experience were uniquely positioned to capitalize on a new market for producing smokable hemp flower.”
Arbit will moderate the panel “How To Differentiate In The Crowded CBD Industry” at the upcoming International Cannabis Business Conference in San Francisco on February 6-7.
Other well known Cannabis brands such as Select, Golden Seed and even Kushy Punch, an embattled SoCal brand which ran into licensing issues with its Cannabis business, have all aggressively expanded into CBD.
Arbit also pointed out that Wagner-Dimas recently formed a joint venture with Golden Seed, the Santa Cruz cultivator and lifestyle brand, to produce CBD hemp prerolls. Golden Seed, which recently launched its crowd-funded investment offering, can count former NBA stars Brian Shaw, Mario Elie and Jason Richardson, and Green Day guitarist Mike Dirnt among its early investors.
“Pairing Golden Seed’s genetics, cultivation, and infrastructure with our processing tech and expertise will enable both parties to quickly and seamlessly enter a much bigger addressable market and tap new consumers,” says Arbit.
Demand for CBD products is seemingly enormous and increasing, as consumers and patients learn more about the benefits of infused products, from gum and beauty products to pet food and pre-rolls. Distribution regulations regarding hemp products versus THC products are night and day. THC products are prohibited from crossing state lines, whereas legal hemp and CBD products can be shipped to most of the U.S., as well as globally.
THC products are required to be sold at dispensaries and through heavily regulated delivery services. CBD, on the other hand, is sold almost everywhere, including online and in brick and mortar outlets. Gas stations, convenience stores, and even national chains such as Circle K and CVS, are allowed to carry CBD products.
In virtually every measurable way the hemp/CBD industry is operating on a far more favorable playing field when compared to the THC arena. And just as consumers use CBD to counter the inebriating effects of THC, forward-thinking cannabis companies are looking to CBD as a hedge against the over-regulated, slow moving cannabis space.
The great proliferation of distribution outlets was a key factor Arbit points to in expanding his firm’s focus to encompass hemp.
“The scale is on an entirely different level, we’re talking about a couple thousand dispensaries throughout legal states in the country, versus over 300,000 mainstream outlets in the U.S. alone,” Arbit explains. “We think online sales alone of THC-free products will rival total recreational dispensary sales.”