Four Investable Sectors of the Legal Marijuana Industry: Part 2 – Nutraceutical and Industrial Hemp
By: Charles Freeman
Last month, I described the first two of the four investment sectors I’ve identified in the legal cannabis and hemp industry. When asked about the probability of marijuana legalization over the years, I had always assumed the market would be based on “recreational” consumption and compete with the alcohol and tobacco markets. However, the marijuana and hemp industry has expanded to include other segments beyond recreational. Just as the automotive industry can be broken down by segments such as cars, trucks, SUVs, and motorcycles. The four sectors I see in the legal cannabis industry include – Recreational, Pharmaceutical Medical, Nutraceutical, and Industrial Hemp. In this month’s column, I want to explore the last two segments.
Nutraceutical (and Personal Care)
The legal cannabis and hemp nutraceutical market is one of the fastest growing trends of today. But my definition of the Nutraceutical market is broader because I include personal care products in the category as well. Basically, I characterize these products as being based from a marijuana or hemp plant and that they do NOT require a prescription to purchase. You may have seen the “CBD sold here” signs pop up seemingly overnight around town. Those are the places you can buy the nutraceutical products, and the types of products can range widely.
The one that is catching most of the attention locally is CBD hemp products. Hemp was recently made legal via the passage of the 2018 Farm Bill and while hemp products are not exactly brand new; the reported benefits from cannabidiol (CBD), which can be extracted from hemp, have created a new health and wellness craze which could last if more research substantiates stated claims. Just a reminder: CBD is a NON-psychotropic compound in hemp and does not produce a “high” when consuming it. So, while most reports of effectiveness are based on personal claims, people are buying things like CBD tinctures in hopes it will help everything from insomnia and anxiety to aches and pains.
What is a CBD tincture? Tinctures are a concentrated liquid that can deliver the effects of the cannabinoid molecules without smoking. Tinctures are designed to be taken in small doses due to the concentration of the product. If you go into a hemp store, the tinctures will be the little brown medicine bottles with a dropper. You can take the recommended amount by applying it under your tongue, mixing it in some pasta, or adding it your coffee. This new “method of delivery” allows the product to be consumed much more easily and, from an investment standpoint, provides the opportunity for higher demand for the product.
CBD is also being extracted and combined with creams and oils to be used topically. In early June, the grocery store chain Kroger added CBD topicals in stores across 17 states. In my investigation of the industry, I purchased a hemp-based CBD cream that was designed for sore muscles. I play a lot of tennis, so my arm tends to get sore after I’ve played several days in a row. To be completely honest, I couldn’t tell much difference between the CBD cream and any other sore muscle ointment I’ve used. I did use it sporadically so that could have been a factor. Since that experience, I’ve had several people tell me that consistent use aids in the effectiveness of the product. Who knows? But this is where we need guidance from our research community to provide suggested amounts and frequency of use, just like any other over-the-counter product I could buy at a drug store.
I also include other hemp-based products in the nutraceutical category. Hemp seeds are being used in lotions and shampoos. From what I’ve seen, almost every type of product that you can find in the “Personal care” aisle at Target is being created with some form of hemp in it. Are hemp-based lotions more moisturizing than something else? To me, it goes back to what works best for each person. We are all different and different products work better for different people. The point is that because CBD extracts and hemp seeds can be used and marketed in just about anything, the Nutraceutical/Personal Care sector stands to be huge over time.
Hemp has been used by various civilizations for literally thousands of years. Hemp rope and textile fiber have been found by archaeologists at numerous sites around the world throughout history. Hemp products faded from industrial use as it was coupled with marijuana and targeted as a drug. Without dwelling on the history so much since hemp is now legal, the new question is what can we use hemp for today? This point is particularly relevant given the growing “Sustainability Movement.”
The Sustainability Movement, in my opinion, is very broadly defined as a recognition and advocacy for products and policies that are more environmentally friendly. More and more people are acknowledging climate change, the pollution of our oceans, recycling, and other issues related to the “sustainability” of our planet and its resources. Industrial hemp products stand to be a potential solution for some of these problems. For instance, hemp can produce 2-3x more fiber for clothing than cotton, with ½ the required amount of water. You can produce 2x the amount of paper from hemp vs. wood pulp per acre, AND you can get it in 3 months vs. 10 years! A 1938 issue of Popular Mechanics magazine suggested hemp could be used to produce more than 25,000 products.
From an investment standpoint, the various industrial opportunities of hemp create more potential demand for the plant. Is it likely hemp paper would ultimately replace paper made from wood pulp? It’s a possibility, but it would likely be a very long time before that would happen. However, given the versatility of industrial hemp, you can’t ignore the potential size of this market over time.
In summary, each of the four identified investment sectors in the legal marijuana and hemp industry has valid reasons for sustained growth. Think about it – a person could get up in the morning, add a CBD tincture to her coffee, put on clothes made from hemp fiber, go to her office and print a presentation on hemp paper, drive home in a car with plastic containing hemp, and settle in for a relaxing night at home with her spouse after taking a THC marijuana gummy. We are not as far away from that reality as you might think.