With the end in sight for the 2018 U.S. Farm Bill, which contains provisions likely to grant hemp full agricultural legalization, and revenues from existing hemp products rising, hemp farmers are seeing reasons for excitement this fall.
-- The Farm Bill is set to finally pass through Congress in the near future.
-- Predicted hemp revenues for the next few years are soaring.
-- Hemp is doing particularly well in states with supportive politicians, such as Kentucky.
Sugarmade, Inc. (OTC:SGMD) (SGMD Profile) has made the most of this opportunity through investment in Hempistry, a hemp cultivator with big plans for expansion. The popularity of cannabidiol (CBD) products means that hemp may soon surpass the value of other cannabis products, which is providing strong profits for companies such as Tilray, Inc. (NASDAQ:TLRY). This popularity will likely to lead to growth in the food and beverage industry, one reason why Canopy Growth Corp. (NYSE:CGC) (TSX:WEED) has received substantial investment from that sector. HEXO Corp. (OTC:HYYDF) (TSX:HEXO) plans to increase its 310,000 square feet of cannabis cultivation space to almost 1 million square feet by the end of the year. Meanwhile, Aphria (NYSE:APHA) (TSX:APHA) is developing new products to tap into Canada's lucrative market.
To view an infographic of this editorial, click here.
Hemp Rides High on Wave of Change
Four years ago, it would have been virtually impossible to talk about a hemp industry in the United States. As a variety of the cannabis plant, hemp had been made illegal under legislation decades ago despite not containing significant quantities of the active drug compound that gets marijuana users high from other distinct forms of cannabis. State level reforms had done nothing to protect hemp on a federal level, and the plant was struggling to make its mark.
All that changed with the 2014 Farm Bill, which allowed for the cultivation of hemp at trial and research sites. Together with the emergence of laws in more cannabis-friendly states, this has allowed the industry to take off in a big way. Hemp is being put forward as a potential cash crop to be used in producing fibers, medicines and health foods. Farmers are starting to see big profits from hemp crops. And with fresh legislation on the verge of passing in Washington, the industry appears set for a surge in growth.
Fighting over the Farm Bill
For companies invested in hemp, such as Sugarmade, Inc. (OTC: SGMD), one piece of legislation has dominated the political landscape over the past year - the 2018 Farm Bill.
Farm bills are pieces of legislation passed by Congress every few years as the previous iterations expire. They set out government policies on issues of agriculture and food supply. As complicated pieces of law covering multiple topics, these bills are much haggled over by both houses, and the 2018 bill has been no exception. Divisions over food stamp rules and immigration policy has held up its passage for months.
This year's farm bill has Sugarmade's attention because of a section that will remove quality hemp production from drug enforcement restrictions nationwide. Backed by Senate Majority Leader Mitch McConnell, this has been one of the less controversial parts of the bill despite hemp's illicit history. The possibility of offering struggling farmers a valuable cash crop is one that both parties can get behind.
Unfortunately, this important change for hemp was left in limbo thanks to the other battles over the bill. But now discussions in committee are finally moving towards a finished bill that unifies the House and Senate versions, as the lame duck Republican house majority tries to pass a law it can stomach before control of a dominant voting bloc passes to the Democrats.
Bottom line: the legalization of hemp cultivation could be just days away.
Hemp Heads into the Mainstream
This political change has been facilitated by shifting public attitudes towards hemp. The plant is increasingly popular in food and body care products and has been singled out as one of the top trends for next year by Whole Food Market. That's good news for Sugarmade, which recently launched its own industrial hemp initiative, as it means there's not just a consumer market for hemp-derived products but also the political will to make production easier.
These shifts in attitudes are reflected in the varying fortunes of states as well, with some receiving far stronger support for their hemp industry than others. For example, Kentucky's hemp industry is bolstered by advocacy from the state's politicians. Congressman James Comer has been outspoken in supporting the state's industry and in pushing to get the Farm Bill approved.
Sugarmade is among the companies benefiting from Kentucky's positive attitude towards hemp. The business has invested $1 million in Kentucky hemp company Hempistry to support its high-grade hemp operation for the U.S. market. Harvest of this year's crop has recently started, following a test harvest of samples by the Kentucky Department of Agriculture (KDA), and the company is inviting interested parties to place bids on the crop. With demand for hemp rising, Hempistry's legally grown, CBD-rich crop is likely to be in high demand.
Rising Hemp Revenues
One of the reasons behind Sugarmade's investment in Hempistry is the dramatic rise in revenues from hemp crops. A few years ago, no one could have predicted the popularity hemp would achieve by 2018. The crop was mostly a side note, a reminder of the days when its fibers were used to make ropes and sales. When interest in CBD started to expand, producers realized that it could be extracted from industrial hemp. By turning this interest into a separate industry, businesses could sell CBD without becoming entangled in a mass of legal and social uncertainties.
Companies that have made strong investments in hemp cultivation, such as Sugarmade, will gain considerably from hemp's ascendancy, to the benefit of managers and common share investors. Jimmy Chan, CEO of Sugarmade, commented, "Demand for industrial hemp and products derived from hemp is soaring with no let up in sight. We expect our direct investment into Hempistry to be accretive to common shareholders, and our supply agreement to be lucrative. All of us at Sugarmade see a tremendous opportunity to become a supplier to this fast-growing sector."
Expanding the Hemp Harvest
With the hemp market growing so fast and the Farm Bill promising to make hemp farming easier, many companies are looking to expand their operations. Having just harvested 100 acres of CBD-rich hemp, Hempistry is focusing on achieving a 10-fold increase in its acreage next year, which would make it one of the largest hemp cultivators in North America.
This expansion is happening alongside that of companies in the related cannabis sector. In Canada, recreational legalization has been big news for companies such as Tilray, Inc. (NASDAQ:TLRY), one of the largest cultivation companies in the country. A leader in research, production and distribution, Tilray has seen staggering financial growth over the past year, with an 85 percent rise in revenue during the third quarter and a 78.9 percent rise for the year to date. Legal and social changes have created the space for a substantial new industry to flourish across North America and beyond, bringing in big bucks for the companies that pioneered the sector.
Growth into the beverage and whole food markets is a likely next step for many hemp and cannabis companies, and big players on the inside of those industries have started to take note. Constellation Brands, a leading American beverage manufacturer, has invested billions of dollars in Canopy Growth Corp. (NYSE:CGC) (TSX:WEED), one of the largest cannabis growers in Canada. Canopy Growth is relatively small fry compared to the power of Constellation Brands, but the funds such a corporate giant can spare make a big difference in an emerging industry. The result is likely to be the development and marketing of CBD-infused foods and drinks, pushing the industry into places it hasn't previously reached.
HEXO Corp. (OTCPK:HYYDF) (TSX:HEXO) produces cannabis through its Hydropothecary brand and recently announced plans to develop nonalcoholic, cannabis-infused beverages with Molson Coors Canada. This joint venture with one of the world's biggest beer makers is a significant move to position HEXO in the burgeoning cannabis-infused drinks market. The company also announced that it has closed on the acquisition of its first major facility outside of Quebec.
Aphria (NYSE:APHA) (TSX:APHA) has also seen rising revenues and profits since 2016, thanks to the growth of this innovation-led market. It recently announced a collaboration with Perennial, Inc., to develop products for the Canadian market, a critical region for any company looking to expand beyond the United States.
With hemp revenues on the rise and politicians about to ease the way for hemp farmers, this is a sector that's likely to keep growing in strength for years to come.
For more information about Sugarmade, please visit Sugarmade, Inc. (OTC:SGMD).
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