By Evan Stait
The passage of the Cannabis Act last year in Canada ignited an entirely new and legalized industry. But while last year the story was all about recreational cannabis, the next “big thing” is hemp and cannabidiol (CBD) oil.
What is hemp? What is CBD?
Canadian growers have been producing hemp since at least 1994, when the government began issuing licenses to grow industrial hemp. Hemp is a strain of the same cannabis plant that produces marijuana, but it contains only very small amounts of the psychoactive drug known as tetrahydrocannabinol, or THC, the compound found in marijuana.
Hemp is a versatile and widely utilized plant. In addition to its food uses, it has been utilized to produce clothing, cosmetics and creams, and even paint and building materials, among other things.
Since at least 1994, Canadian growers have been cultivating hemp for a multitude of industrial purposes, but the law also required them to discard the flower. Last year’s Cannabis Act finally permitted growers to cultivate the flower, and that’s where CBD can be found.
To produce CBD oil, growers sell the hemp flower to producers who are authorized to extract the oil and refine it, or become licensed to do so themselves to extract and process their own products. The idea is to distill and even fully isolate the CBD compound to harness as much as possible of its variety of benefits.
What are the benefits?
Today, the market for CBD products is exploding in Canada and abroad. CBD oil has a wide variety of uses, from cosmetics to food products. It’s also used as an alternative treatment for certain health concerns, such as anxiety, insomnia, pain relief, and even for ADHD and epilepsy. It’s not psycho-active, meaning it does not get you “high”, so the demographic that can benefit from CBD is enormous. Most proponents of CBD do not want it confused with cannabis and suggest considering it as a pure “health product”. The benefits of CBD are even utilized to assist pets and other animals.
Among the more attractive aspects of CBD is the ability to produce it on a broader scale. Where cannabis is more often cultivated indoors, hemp is being grown at scale in the open air. There are also fewer regulatory constraints than with cannabis, so entrance into the market is easier.
All of these factors combined with current market valuations for the finished product make hemp cultivation and CBD refinement an enticing investment for both the private and public sectors.
What are the risks?
The challenge in any new market is determining the Hemp and CBD risks and adequately preparing for them. Prior to the 2019 growing season, hemp grown outdoors for the purpose of CBD extraction had never been done before. It’s an exciting new time and it is a true pioneering opportunity. Early investors and participants, however, face a high risk, high reward scenario.
HUB International is fortunate to have insurance specialists in both the cannabis and agricultural sectors. Through a combined effort and expertise, it has been able to secure some of the first crop insurance options for high value hemp being grown in the open air. This provides both the investment community and the cultivators themselves with a risk transfer strategy, allowing them to pursue the emerging sector more aggressively with the backstop of insurance. Insurance plays a big role in the growth of the industry in its early stages.
By the end of the year, there will be new data to inform other decisions, as the regulations require growers to register their land with the Ministry of Agriculture and be licensed by Health Canada. This data will help determine the best way to cover risks related to high potency CBD strains and the unique supply and demand structure of this new industry.
Contact a HUB cannabis industry specialist to determine whether your CBD business has the right kind of coverage to cover all risks appropriately.