The hemp world is constantly evolving, and rapidly. When — or if — it shifts to where Hemptown USA has placed a big bet will be one of the more interesting questions of 2020.
The company, incorporated in Canada but with its major operations in Oregon, has raised about $23 million in a few short years of existence, and poured much of it into producing and selling CBG. Short for cannabigerol, it’s a cannabinoid like CBD, aka cannabidiol. But unlike CBD, it's virtually unknown to the masses.
“There’s tremendous excitement about CBG on the industry side,” said Bethany Gomez, managing director at Brightfield Group, a leading CBD and cannabis research firm.
“My concern is that I’ve yet to see that echoed on the consumer side.”
Hemptown USA grew 500 acres of CBG-dominant hemp in Jackson County this year, giving it around three-quarters of a million pounds of plant material — about 40 percent of the U.S. CBG crop, the company estimated.
It’s been selling some of that biomass, which was harvested and dried for safe storage, and has introduced a line of its own processed products. But Hemptown expects to earn most of its revenue selling the hemp extract as an ingredient or using it in consumer products it makes for other companies.
“We do have to build the market a little bit ourselves,” Hemptown USA President Michael Townsend said. “But we don’t think that’s going to be a big challenge. We believe the science is there that CBG is a superior product.”
Hemptown is talking a lot about the science of CBG as it attempts to educate the market about the molecule, going so far as to produce a 52-page white paper, “The Mother of All Cannabinoids.”
The title refers to an acidic form of CBG that is a precursor to other cannabinoids in the cannabis plant, including CBD and THC, the intoxicant found in marijuana. There's long been interest in CBG, but plants with high levels of the compound were hard to find until recently, when Oregon CBD, the industry-leading seed supplier, developed CBG-dominant hemp varieties.
Early research suggests CBG can act on the endocannabinoid system to aid in controlling inflammation, pain and anxiety, among other therapeutic uses.
While the white paper references dozens of studies that have explored CBG, including its possible benefits, Hemptown USA avoids making direct health claims. That’s a good idea, with federal regulators having recently signaled an increased willingness to call out CBD product makers on that count.
That points to one of the challenges CBG will have in gaining market share, Gomez, the industry analyst, said.
“Without the ability to make health claims on what it can do for you, they’re going to have a hard time expanding that market and reaching those additional consumers,” she said.
Brightfield surveyed CBD users this year and found that while 87 percent had heard of THC, and around 12 percent the cannabinoids CBC and CBN, CBG awareness trailed at just 8.5 percent.
Which comes first?
“It’s a chicken-and-egg question,” Gomez said. “Without a market presence, consumers aren’t aware of CBG. Without consumers aware of CBG, it’s hard to develop a market presence.”
A recent call to the CBD Hemp Store in Portland suggested there might be hope. Employee Brian Danielson answered the phone, and when asked if he’d heard of CBG, said that as a matter of fact, he’d just been reading a 52-page white paper on the topic. And he said he was a big fan of a CBG tincture made by Flora Sophia Botanicals, a Southern Oregon company that dabbles in the cannabinoid.
“I’m getting a very good response, particularly from older patients with chronic pain,” Danielson said. “It can give them relief beyond what they’re finding with CBD.”
Marshall Farming in Jackson County grew about 10 acres of CBG-dominant hemp this year. At MJBizCon, the giant industry conference in Las Vegas earlier this month, CEO Dylan Owens said samples were “very well received.”
“We don't make claims, but people reported they found it very relaxing,” he said.
The Ladies of Paradise brand out of Portland is featuring the farm's CBG hemp in one of its Lady Jays pre-roll offerings.
Greater Goods, the Portland-based hemp-focused offshoot of Leif Goods, is interested in CBG and other cannabinoids beyond CBD. But the company, known best for its chocolates, sees a couple of issues.
“The problem is when will the public catch on,” co-founder Jody Ake said. “We have been approached by a few companies offering CBG and CBN isolate, but the price per kilo is just too much for us to justify. Once the prices go down I would love to make a product rich in both and other cannabinoids. But it’s a hard sell to the public on the price and then the cost of educating them on the benefits.”
The price of CBD has fallen dramatically in the past year, helping margins for those who use it in products. CBG is around six times as expensive, Townsend said, adding that the company plans to be patient in waiting for buyers to develop.
Hemptown itself recently began selling CBG products — actually, most of them contain combinations of CBD and CBG — on a website revamped to be consumer-facing. It has tinctures, capsules, gums and lotions.
“We're not really trying to be a big retail brand, but we thought it was important to get our SKUs and our face out there in order to drive our B2B business, which is where we see 97 percent of our revenue coming from,” Townsend said.
At MJBizCon, he said, half the people that hit the Hemptown booth asked, “Can you put our name on the product?” — what’s known as white label production.
It can, and that’s where a significant acquisition Hemptown made in July comes into play — the purchase of Kirkman Group, a longtime Lake Oswego pharmaceutical and nutritional supplement maker.
It’s a 20,000-square-foot facility, Townsend said, where 65 people work. About 10 percent of its products are CBD/CBG goods now, he said, with the balance expected to continue to shift in that direction.
Still, most of Hemptown’s money has gone into the growing and drying aspects of the hemp business. It outsources the extraction process, but plans to bring that in house. After the industry’s rapid expansion and subsequent turmoil in 2019, Townsend thinks there could be “assets available fairly inexpensively in 2020.”
An interesting twist in the CBG story is that while the market is uncertain, there are forces pushing toward more production. Most importantly, the CBG seed varieties sold by Oregon CBD mature with total-THC levels well under the 0.3 percent limit that keeps it legal. That might not be the case with CBD-rich varieties under new testing regulations.
“The CBG genetics that the Crawfords (at Oregon CBD) have are the only compliant hemp from a THC standpoint,” Owens, from Marshall Farming, said.
CBG could have an advantage over CBD on another regulatory front, as well. The Food and Drug Administration considers CBD a drug, along with THC. That means that technically, at least, it can't be used as a dietary supplement. That's caused big manufacturers and retail chains to steer clear of it for many uses for now.
But the agency has said “parts of the cannabis plant that do not contain THC or CBD might fall outside the scope of this exclusion,” which could give CBG an opening.
If CBG’s profile rises, and demand climbs with it, Hemptown USA could be sitting pretty with plenty of the cannabinoid ready to offer — especially if prices hold reasonably steady.
“We love the position we’re in,” Townsend said. “Our investment hasn’t been insubstantial, but we’ve kept our cap ex low and we are confident we will be a profitable business as we drive toward an IPO in probably Q2 or Q3 next year.”
What it does: The company grows hemp for the cannabinoid CBG, which can be extracted and used in oil or powder forms in a wide range of products, similar to CBD.
Founders: Rod Wolterman, executive chairman, and Michael Townsend, president
Oregon headquarters: Central PointEmployees in Oregon: 85
By Pete Danko – Staff Reporter, Portland Business Journal