Canadian firm Hempco plans move into CBD extraction as it absorbs losses from S. Korea market retreat

03-Jan-2018 - Last updated on 08-Aug-2018 at 13:28 GMT

Canadian manufacturer Hempco says it will capitalize on new cannabis laws coming into force to move beyond foods based on hemp seeds into the market for CBD ingredients. The strategic play will help offset losses from a debacle in South Korea, where low quality, low cost competition chased the company from the market.

Big Korean contract terminated

Hempco has been selling hemp seeds and foods based on them for more than a decade. The company, which went public in 2016, sells bulk hemp seed protein powder, hemp seed oil and also sells a line of packaged goods under the Planethemp name. The company now sells its products primarily in Canada and the US and has laid extensive groundwork for placement on shelves in the UK.

But until about mid 2017, South Korea was a major part of the company’s plans. According to a recent management communication, Hempco had entered into a contract to supply $9 million worth of hulled hemp seed. But demand for hemp seeds within the country slowed, and the contract was undercut by “a large influx of inferior quality, but low-cost product, resulting in loss of market share, and the contract was terminated before being serviced in full.”

For years, Hempco concentrated on hemp seeds. But stalled revenue and new opportunities have led the company to move more quickly on its vision of whole plant utilization, which would include CBD extraction.

New opportunities in Canada, California

A big door was opened in 2017 with the passage of the Cannabis Act, which legalizes use of the plant for all Canadians and will permit citizens to possess 30 grams of dried cannabis and grow four small plants (less than meter tall) of their own. Regulations around the implementation of the law still need to be formulated, and the provinces will set up their own rules to cover areas the national law does not touch, such as where and how cannabis products will be sold. The whole process could take as much as 15 months. Hempco said it expects the act’s implementation schedule will allow it to begin extracting CBD from whole hemp by the middle of 2018.

While the legalization of recreational marijuana in California, which went into effect on Jan. 1, 2018, was not mentioned in the commentary, it stands to reason this will be an opportunity for the company, too. California, with a 2015 GDP pegged at $2.4 trillion, is when taken in isolation the sixth largest economy in the world, ranking above France and Brazil.

New partnership

In order to capitalize on that opportunity, the company said it “entered into a partnership with, and received an investment from Aurora Cannabis. The partnership positions Hempco exceptionally well to capitalize on the opportunities for whole-plant utilization, including the extraction of CBD, once the new Cannabis Act is adopted, among others through Aurora`s strategic extraction partner Radient Technologies.”

Aurora Cannabis, based in Alberta, is one of Canada’s foremost manufacturers of medical cannabis products. The company’s technological expertise as well as its $3.25 million investment will be put to use in the construction of a new processing facility in Nisku, Alberta.

New CEO Diane Jang, who was named to the post in early December, called 2017 a “transitional year” for the company. Fiscal 2017 revenues hit $6.5 million, a 25% improvement over the $5.2 million for fiscal 2016. Losses continued, however, with the company posting a net loss of $2.6 million for the fiscal year, which ended on Aug. 31, 2017. The termination of the South Korean deal means revenues will be depressed until later in 2018, she said.