PART ONE — GROWTH OPPORTUNITIES

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

• In 2018, the Government of Canada updated the industrial hemp regulations so that the industry can now harvest the flowering heads, branches, and leaves of the plant.
• These new regulations made new revenue and market opportunities available to hemp producers.
• The sector began and continues to research the best methods to make full use of the hemp plant.

D) Processing Growth

• One of the ways to increase the growth and processing of hemp is to create new biological types of hemp appropriate for different uses.
• The Canadian Hemp Trade Alliance has been testing nine new seed varieties in 13 different regions.
• "The group plans to put the varieties through seed trials in 2020 to test germination rates and THC content, among other metrics. "

• The CHTA executive director stated that “New cultivars are an important part of the future.” "The industry believes the CBD opportunity represents up to $100 million in additional revenue for hemp growers, based on the number of current acres in production."

E) Distribution Growth

• According to the Canadian Hemp Trade Alliance, they expect hemp seed markets to flourish in health foods, nutraceuticals and food additives/ingredients.  
• Topicals such as natural body care and cosmetics are expected to add hemp to their product lines.
• Birdseed and Pet/Vet markets are also projected to grow with the use of hemp.

PART TWO — GROWTH DRIVERS

A) Products

• Given the integration of the North American market in hemp, the projection of the sales of hemp-based products in the United States by product category has been provided. The growth trajectory for all figures is 2018 to 2022.  
• The hemp-derived CBD market is expected to increase from $390 million to $1,229 million. 
• Industrial applications for the use of hemp is projected to increase from $177 million to $588 million.
• Hemp, as an ingredient in personal care products, is expected to grow from $198million to $259 million. 
• Food with hemp-derived ingredients could grow from $150 million to $212 million. 
• Consumer textiles based on hemp is projected to grow from $119 million to $183 million. 
• Supplements using hemp, including protein powders, could grow from $47 million to $54 million. 
• Other consumer products, including pet food and supplements, are expected to grow from $17 million to $23 million. 
• A spreadsheet with the figures and a graphic can be seen here on the tab Projected Sales 2022.

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.

 

Source

 

PART THREE — HEMP CO-OPS

A) Parkland Industrial Hemp Growers Co-op Ltd

 Website 

• Parkland appears to be the largest co-op in Canada. They sell high-quality Certified Seed and commercial hemp grain.
• They market to food processors, value adders, food distributors, or formulators purchasing bulk hemp grain.
• They will sell through both Spot Purchase for an individual shipment and an annual hemp grain sourcing contract. 
• They have no published information for investors.

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

• Canadian hemp companies have new direct paths to large funding pools in the United States.
• Now that hemp is a federally legal product in the US, major commercial banks, investment banks, hedge funds, and pension funds have new investment opportunities to consider.
• According to Harrison Phillips, vice president at Viridian, hemp companies looking for investment should keep the following considerations in mind.

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

• No matter the industry, investors want operations run by management teams with successful histories.  
• An investment company will look for both an executive team and a board that has the industry expertise and successes and experience in leading successful companies in other industries.

B) BDO

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

• Types of security for investments "typically include corporate and personal guarantees and general security agreements over some or all assets of the business."
• BDO recommends having lawyers and accountants with experience in this area review the personal guarantee requirement.
• "Security clauses can be altered or removed altogether through negotiation."

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

• In doing their due diligence, lenders and investors will look for audited financial statements, financial projections, expert appraisals, personal net worth statements, etc.
• "All of this requires upfront investment from the borrowers before the loan is processed."

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."