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Opportunities in hemp opening up

U.S. farmers are about to get into the hemp game — but longtime players here in Canada have a business plan to win the day

Canada is the big player in the North American hemp business. In fact until very recently, it was the only player. That’s because of the controversial history of the crop, which had been banned north and south of the border since the 1930s because it was lumped together with its psychoactive cousin, marijuana.

In Canada, however, that changed on March 12, 1998 when, after years of lobbying, Health Canada began issuing the first licences for commercial hemp production.

That kicked off a flurry of would-be entrepreneurs rushing to fill what they perceived as an opportunity. Many failed. But a few did succeed, and today hemp production is a small but growing portion of Canada’s agriculture industry.

A major market for almost all of these hemp producers has been the U.S., where Canadian suppliers have been the beneficiaries of some regulatory foot-dragging. It’s only this year, thanks to provisions in the new U.S. Farm Bill, that American farmers are allowed to grow the crop.

Through those intervening 16 years, however, Canadian farmers and processors were able to grow the crops and ship processed hemp products — but not viable seed — south of the line. Essentially they had a large, wealthy, nearby market to ship to, where there was no domestic competition.

With this situation disappearing, you might expect that industry players would be getting nervous.

Instead, many seem to sense new opportunities.

Doubling down

One person who is excited about these changes is Winnipeg’s Mike Fata, who heads up hemp processor Manitoba Harvest.

man in t-shirt and blue jeans

“That’s always been our strategy – to build a brand,” says Manitoba Harvest’s Mike Fata.

The venture began in 1998 with a simple oil press based at the provincially funded Food Development Centre, a food industry incubator. Today it produces a handful of branded products, including the world’s only all-hemp protein powder, and what Fata calls its flagship product, Hemp Hearts, a hulled hemp seed.

“We think U.S. legalization is going to mean new opportunities and new interest,” Fata says. “We’ve seen this time and time again over the past 15 years — any time there’s anything that gets people thinking and talking about hemp, it has meant increased sales for us.”

This isn’t just idle speculation. This past summer Manitoba Harvest’s plant in the northwest sector of the city has been abuzz with the sound of construction as it dramatically expands its processing capacity to nearly double, following several years of growing sales.

At least in part, the company’s confidence stems from the work it has done over the past 15 years developing its brand and creating relationships with a large and growing book of retailers. Fata says those initiatives have succeeded in making it less vulnerable to new entrants.

In many ways, brand building has been easier because Manitoba Harvest was working within the natural and health foods sector, Fata believess. Mainstream food and grocery products can come with some awfully high barriers to entry, he explains, especially since most food is sold through a handful of major retailers that aren’t interested in filling their shelves with a little bit of this or that product. They only want to talk to you if you’ve got enough to supply all their stores all the time. But the health food sector, is different.

“In the health food market, there are still a lot of independent stores and small chains,” Fata points out. “Working with them allowed us to get our start, and to grow slowly and cautiously. In fact, the very first store that ever sold our products was an independent health food store right across the street from my mother’s house.”

bag of hemp heartsGetting that start put the company on a firm footing and allowed it to create a solid foundation for trying to crack major retailers — a move that coincided with rapidly growing interest in healthy functional foods. Today the company’s products can be found in Costco and Loblaws here in Canada and Safeway and Kroeger’s in the U.S., to name just a few.

“We’re extremely fortunate to have literally thousands of retail partners,” Fata says.

So it raises the question: is the next Coca-Cola brewing in the industrial suburbs of Winnipeg? When I put the question to Fata, the hesitation is palpable. As a true believer in the power of better nutrition, Fata has no interest in that link. Instead he proposes another one.

“We really like Clif Bar,” Fata says. “It’s a very well-known brand, the first baked energy bar, and is well on the way to being a billion-dollar company.”

Whether that desire to build the next great natural food brand succeeds, Fata is further down this road than most, and one observer thinks the business model is a good one.

Anndrea Hermann likely has better insight into the hemp industry on both sides of the border than anyone else alive. She’s a transplanted Missourian who now makes her home in Winnipeg, where she studied hemp agronomy at the University of Manitoba.

Today she’s the owner of The Ridge International Cannabis Consulting, is president of the U.S.’s Hemp Industry Association and lectures on industrial hemp at Oregon State University.

“I think companies like Manitoba Harvest are really well positioned,” Hermann says. “It’s built a brand, and I think that’s important, because most of the processing we’re talking about, it isn’t rocket science. For example, we shell sunflowers in Missouri — that equipment could likely be adapted to hulling hemp. So having a brand moves you outside of that bulk commodity market.”

Hermann says she expects the U.S. industry to take some time to develop, much like the Canadian one did. After all it’s a new crop, complete with a learning curve, and it’s going to take time for farmers to adopt it and learn it. However, she also believes there’s an area where American competitors might benefit from the already developed Canadian industry.

“I think we’ll see Canadian processors working with U.S. growers,” Hermann said. “It’ll be similar to what’s happened in the pulse industry, where Canada had a head start. They’ll either contract with nearby U.S. growers or they’ll go to the U.S. and build a turnkey plant.”

Fata confirms that processors would likely be interested in moving into the U.S. in some fashion.

“Just over the border, in North Dakota, there’s some prime hemp-growing land and some pretty good farmers,” Fata says.

Hermann also suggests other facets of the industry — such as the crop research and breeding establishment — could also benefit, much as they have in the pulse industry.

“This will mean a new market for these great Canadian varieties,” Hermann says.

But branding will be essential here too, Hermann says. Americans would need to be educated to understand and respect plant breeder rights.

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