Yahoo Finance ‘Near impossible’: Canadian firm licenced for CBD in China’s massive market
Frank Qin’s smart hydroponic boxes with looks inspired by the movie Tron Legacy let people without green thumbs discreetly grow cannabis in the comfort of their condo living room. But the 28-year-old has something much bigger in mind for his company: entering the world’s largest emerging market for hemp-derived CBD.
Despite frosty diplomatic relations between China and Canada, Ontario-based Mary Agrotechnologies has managed to secure a highly-coveted licence to grow hemp for CBD in the world’s most populous nation, plus a conditional licence to extract and process the increasingly popular non-intoxicating cannabis compound.
“It’s very hard for a foreign company to receive a licence in China. It’s almost near impossible,” Qin said in an interview. “I had so many trips between Canada and China last year. It took us more than half a year just going back and forth.”
The Arcview Group, a cannabis investment and research firm, recently counted just 15 entities authorized by Chinese authorities to extract cannabinoids from hemp. It estimates 60 companies are licenced to grow hemp in Yunnan and Heilongjiang, the provinces where laws for cultivation and processing have been established.
CBD, or cannabidiol, has surged in popularity in recent years as a wellness supplement for a host of ailments from aches to anxiety. It’s sold as an oil or infused into a seemingly endless array of consumer goods.
In China, the law permits only external-use CBD products like lotions and cosmetics. That limited range of infused items is gaining serious traction with the country’s roughly 350 million millennials. Qin said one Chinese cosmetics startup that launched its first product in February is now raking in more than $20 million in monthly sales.
While it’s unlikely China will embrace recreational cannabis to the extent Canada has in the foreseeable future, the country’s stance on hemp-infused products may soften with increasing international acceptance. The Arcview Group believes it is “only a matter of time before the pervasive, global CBD consumer market reaches China.”
Mary Agrotechnologies plans to scale-up the vertical farming technology used in its grow boxes at a new facility in Yunnan. Qin said a 150,000 square-foot EU good manufacturing practice (GMP) compliant cultivation and extraction operation will be fully constructed in six months.
“It’s like our grow boxes, but 200 times bigger,” he said.
China, home to some of the strictest drug-enforcement policies in the world, approved industrial hemp cultivation in Yunnan in 2010 and Heilongjiang in 2017. The crops have mainly flowed into the country's massive textile industry, and even the uniforms of the People’s Liberation Army.
Zhao Yusen, a member of the Chinese People's Political Consultative Conference’s national committee, said in May that he expects annual industrialized hemp sales to hit US$100 billion in five years, up from about US$10 billion today, and eventually grow into a “a trillion-level industry.”
Leveraging lower electricity, labour and raw material costs, China has come to wield production dominance over a host of key global supply chains, such as active pharmaceutical ingredients and lithium-ion batteries. The Arcview Group expects the trend will carry for cannabis.
“With newfound government support for the industry, one of the lowest cannabinoid production costs globally, and unrivaled large-scale manufacturing infrastructure and expertise, China is likely going to be a leading source of cannabinoids for the global supply chain for the foreseeable future,” the firm wrote in a recent report titled China: A Rising CBD Superpower.
Mary Agrotechnologies is no stranger to the advantages of Chinese supply. Its grow boxes are assembled in Canada from components made in China, allowing the company to sell units at a lower cost than a number of competitors.
Once construction at its Yunnan facility is complete and the first hemp crop is harvested, the company plans to sell raw CBD extract to product manufacturers and eventually roll out its own line of infused consumer products.
While other Canadian companies, such as Vancouver-based Benchmark Botanics (BBT.CN), have announced plans to enter the Chinese hemp market, Qin notes that most are doing so by partnering with local hemp companies.
“We might be the first one in North America to have this full set of licences,” he said.
Despite deepening the ties to China, Qin said Mary Agrotechnologies will remain Canadian. Looking towards a future listing on the Canadian Securities Exchange, he hopes his company’s fusion of Chinese and Canadian identities will be more agreeable than the two nations these days.
“We want to be the bridge between both worlds. Because we are a Canadian company entering China, we want to bring peace and understanding to both sides, as well as economic value,” Qin said. “We have a bigger vision than just grow boxes.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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