Hemp Market in Canada

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Hemp Market in Canada

PART ONE — GROWTH OPPORTUNITIES

Growth opportunities for hemp-related products exist in Hemp-derived CBD, Industrial applications, Personal care, Food, Consumer textiles, Supplements, and other consumer products such as pet food.

A) Current Market Size

1) Overview

  • Sales of hemp products in 2018 were estimated at $138 million.
  • In 2018, Canada planted 77,800 acres of industrial hemp, a decrease from a high of about 123,000 acres in 2017.
  • In 2018, Canada exported nearly 5,400 metric tons of hemp seed valued at nearly $50 million.
  • About 450,000 people use hemp and cannabis products each day in Canada.
  • Canada’s hemp regulations changed in 2018 "to expand the plant’s legal uses beyond seed and fiber, opening the door for Canadian Cannabidiol (CBD) production from hemp."

2) Statistics

  • Statistics on the number of hemp licenses and hectarage of hemp by cultivar are available here.

B) Canadian Agricultural Partnership

  • The Canadian Agricultural Partnership was a three billion-dollar, five-year project by the Canadian government, which ran from 2013 to 2018.
  • The three parts of the initiative included a new policy framework, funding for agricultural programs, and programs focusing on innovation and business risk management.

C) Growing the Canadian Hemp Sector Through Cannabis Legislation

D) Processing Growth

E) Distribution Growth

PART TWO — GROWTH DRIVERS

Growth in the Hemp Market is being driven by consumer demand for hemp-based products, as well as by funding from the government of Canada.

A) Products

B) Canadian Government Support

1) Research Funding

  • The Government of Canada has created an investment funding program called the Innovation Superclusters Initiative. It is designed to bring together academic institutions, companies of all sizes, and not-for-profit organizations to generate bold new ideas.
  • The CHTA developed a Five-Year Research Plan that started with a call for Letters of Intent from hemp researchers. After receiving 29 letters, the Alliance selected 11 projects, which generated a request for $5.7 million in funding.
  • Working in partnership with the Proteins Industry Canada, the Alliance has applied for funding from the Protein Industries Supercluster of the Economic Development Supercluster.
  • The CHTA is also part of the Diversified Field Crops Cluster. This cluster will be funded through Agriculture and Agri-Food.

2) Infrastructure Funding

  • The government of Canada has also funded a program called Growing Forward 2. The goal was to develop an infrastructure to position Canada's Agriculture Sector for Growth.
  • Outputs of this program include a policy framework, an Agri-Innovation program to develop new products, an Agri-Marketing program to support food safety and traceability systems, and to develop new markets, and an Agri-Competitiveness program to increase profitability.

PART THREE — HEMP CO-OPS

While there are many companies involved in the supply chain for hemp, only two currently identify themselves as co-ops. There is also a co-op that self-identifies as cannabis growers, which is not included in the analysis.

A) Parkland Industrial Hemp Growers Co-op Ltd

Website

B) BC Craft Farmers Co-op

Website

  • In February 2019, Grow Tech Labs invited small producers and processors across BC to create the BC Craft Farmers Co-op.
  • The CEO of Grow Tech Labs stated that "BC has a lot to gain by ensuring thousands of existing Health Canada registered growers are active participants in Canada’s cannabis economy. With their combined capacity, these small BC producers and processors could become one of the largest cannabis enterprises in Canada."
  • BC Craft Farmers Co-op states that its values are Self-help, Self-responsibility, Democracy, Equality, Equity, and Solidarity.
  • The Coop is in the process of incorporating under the provincial Co-operative Association Act.

PART FOUR — RAISING CAPITAL

A) Investment Expert Advice

1) Focus on fundamentals

  • Investors are looking for businesses that will create sustainable value.
  • This means companies must have their financials in order and ensure their predictions on realistic. Anything less and the investors will pass the company over.

2) Build your thesis

  • Hemp growers must educate potential investors on the future of the industry.
  • Lay out a plan that gets investors into your mind,” Phillips said. “If an investor asks you why you’re investing so much into cultivation when at some point the wholesale product is going to be available nationwide, you should have a really good answer with forecasts that are conservative and not just hockey sticks on a chart.”

3) Round out your executive team

B) BDO

BDO Canada has advice specific to raising capital in agriculture. Their recommendations to those seeking capital include:

1) Innovation is Power

  • All investors like innovation and agriculture investors are no different. Investment in advanced and innovative machinery that provides faster processing times and higher yields are popular.

2) Security—buyer beware

3) Think outside-the-box

  • BDO recommends considering crowdfunding as a source of capital.

4) Eyes wide open

a) Applying for a loan costs money

  • Banks charge a fee to process a loan. This fee can be between a few hundred to a few thousand dollars depending on the size of the loan.
  • Some lenders even have an upfront, non-refundable fee, which means even if obtaining the loan is unsuccessful, the fee is still owed.

b) Due Diligence

c) Approval

  • Most lenders send loan applications to their credit department. This workflow typically involves additional information to be submitted or further work be done before approval is given.
  • Generally, this process results in longer processing times than for average loans.

d) Decision metrics

  • When assessing credit risk, lenders and investors use different metrics to determine good candidates. Traditional metrics include the value of the underlying assets and EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization).
  • Some lenders look for a "debt service ratio of at least 1.25 to 1, which means that for every dollar of debt repayment required, the business must generate $1.25 of cash profit."



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