Last week, news broke that Congressional lawmakers had reached tentative agreement on the 2018 Farm Bill, including an amendment to fully legalize hemp in the United States. Yet, even as the hemp industry awaits final passage, some industry players have already taken steps to enact large-scale growing and processing operations to gather market share and establish position when the starting bell rings.
One such company is Vitality Natural Health (Vitality), reportedly the single-largest hemp operation in North America. With over 20,000 acres of hemp growing, Vitality on daily average produces 150 tons of hemp biomass and can produce about 10,000 kilograms of CBD isolate.
Despite being North America’s largest hemp producer, Vitality is yet to enter the retail market. Instead, the company is focused on the production and wholesale of hemp-based CBD isolate, distillate, and full-spectrum softgel capsules.
According to Vitality CEO Robert Leaker, one of the keys to the company’s success as a producer was its choice of location to establish operations. Though based in Canada’s capital Ottawa, Vitality’s farming operation is located in Eureka, Montana, less than 10 miles from the U.S.-Canadian border.
What makes Montana particularly advantageous for production, beyond a Colorado or Kentucky, are its spare, favorable regulations.
While 18 U.S. states allow hemp production, many among them do not allow for the commercialization of hemp products, and often require that producers partner with an academic institution. Even in states that allow hemp commercialization, there are limits on how much hemp companies can produce.
Though Canada has legalized adult-use cannabis, hemp-based CBD is treated as a controlled substance. CBD products in Canada, regardless of origin, can only be sold or distributed through licensed producers, and is not available for sale over the counter like in the United States.
In contrast, Montana has no restrictions on commercial hemp-derived products, does not require producers to partner for research, and has no limits on production. When combined with its cheap land and low property taxes, Montana becomes surprisingly attractive for companies looking to set up large-scale cultivation and processing operations.
Vitality remains focused on its industrial processing capacity, which Leaker describes as key to helping the company win economically.
“What we realized very quickly is that you needed to integrate the supply chain,” he explained. “If you don’t integrate your supply chain, you will never capture hemp’s full value: It’s a game of capacity.”
On average, a kilogram of CBD isolate can cost between $5,500-$7,500, depending on current market supply and demand. Looking forward, Leaker believes that demand for CBD products will soon outpace supply, especially once the 2018 Farm Bill is passed and large retailers like Walmart enter the market.
Leaker noted that a year ago, 5 kilograms of CBD isolate was considered a large order. Today, Vitality is regularly receiving orders for anywhere between 50 and 100 kilograms of CBD isolate, and expects to see orders of up to 10,000 kilograms.
Hemp operators will need several years to develop the infrastructure necessary to equal Vitality’s production capacity, which gives Leaker confidence that Vitality is positioned to dominate the industry.
“Prices will remain high as long as demand outstrips supply,” he said. “In fact, companies should be locking in contracts to guarantee their production capacity. As the market increases, it’s going to be harder to get the product we are able to produce at scale.”
Following a deal with Ottawa-based Livwell Canada (CSE: LVWL), Vitality has plans to go public in Canada via a reverse takeover. Through the deal, Livwell will issue new common shares for Vitality to own 85% of the public company. The transaction is set to close in March, when announcement of a new company name is expected.