Affected by the leak of documents from the U.S. Department of Health and Human Services last month and the U.S. Senate Majority Leader Schumer’s discussion last week of recent legislation focusing on this concept, the U.S. industrial hemp sector continued its strong gains on Monday. Canopy Growth closed up 81.37%, Aurora Cannabis rose 72.17%, and many other sector stocks and ETFs also experienced double-digit percentage increases (Figure 1).
Following the rise in U.S. stocks on Monday, stocks related to the industrial hemp concept in the A-share market, which had been dormant for a long time, also set off a daily limit surge. Today, the A-share industrial hemp concept stocks Rheinland Biotech, Tonghua Jinma, and Dezhan Health closed at their daily limit, with stocks such as Fuan Pharmaceutical, Hanyu Pharmaceutical, Longjin Pharmaceutical, and Shunhao Holdings among the top gainers (Figure 2)!
Figure 1 Increase in U.S. Industrial Cannabis Stocks
Figure 2 Growth rate of A-share industrial hemp sector
China is a big country in growing industrial hemp. Currently, some companies are actively expanding industrial hemp-related projects overseas. Take Rhine Biotech as an example:
Rhine Biotechnology is mainly engaged in the field of plant functional ingredient extraction and is the first listed company in the domestic plant extraction industry. At present, the company has developed more than 300 standardized plant extraction products, including monk fruit extract, stevia extract, industrial hemp extract, tea extract and other health care and skin care extracts.
Rheinland Biotech closed at the daily limit, with a closing price of 8.12 yuan. The stock reached its daily limit at 9:31 and opened the daily limit 5 times. As of the closing price, the closing funds were 28.1776 million yuan, accounting for 0.68% of its circulating market value.
In terms of capital flow data on September 12, the net inflow of main funds was 105 million yuan, accounting for 17.38% of the total transaction volume, the net outflow of hot money funds was 73.9481 million yuan, accounting for 12.19% of the total transaction volume, and the net outflow of retail funds was 31.4218 million yuan, accounting for 12.19% of the total transaction volume. The turnover is 5.18%.
Figure 3 Rheinland Biotech’s recent stock price trend chart
The main development history of the company’s cannabis business
In 1995, the predecessor of Rhine Biotech successfully developed Luo Han Guo extract and Ginkgo leaf extract and built a factory and put it into production. Five years later, Rhine Biotech was officially registered. Seven years later, Rhine Biotech was listed on the Shenzhen Stock Exchange.
The North American subsidiary and the European subsidiary of Rheinland were established in 2011 and 2016.
In May 2019, the company announced that it planned to invest in the construction of an industrial hemp project in the United States, with a construction scale of 5,000 tons of raw material processing capacity per year. The products related to the project can be used in many fields such as medical treatment, food additives, cosmetics, and pet supplies. The reason why Rheinland Biotech chose to establish a US subsidiary and set up a CBD factory in 2019 is mainly because although industrial hemp has a wide range of applications, market acceptance is low and supervision is strict. It was not until 2018 that the first application license was obtained in the United States. , Rheinland Biotech’s industrial hemp layout was earlier. After its approval, CBD was first used to relieve anxiety, sleep disorders and chronic pain.
On the afternoon of June 28, 2022, Rheinland Biotech announced that the company’s U.S. industrial hemp extraction and application engineering construction project (hereinafter referred to as the industrial hemp project) has passed the acceptance and review of the Indiana state government and third parties, and has carried out large-scale feeding Production has officially entered the mass production stage. The company said it expects the total investment in the project to reach about US$80 million.
On March 22, 2022, the company stated in the research that the industrial hemp intention agreement signed this time is mainly to process 227 tons of industrial hemp raw materials on behalf of the customer. It is initially estimated that the processing fee amount of this agreement will be between US$2.55 million and US$5.7 million. In other words, the agency processing fee for each ton of industrial hemp raw materials is expected to be more than 10,000 US dollars. Compared with the current sales price of CBD extraction products in the US market, the income from this agency processing is not lower than the income from the company’s own industrial hemp extraction business. The company believes that the current downstream market still maintains a positive and optimistic attitude towards the industrial hemp industry, and demand continues to exist.
On June 28, 2022, the company announced that the U.S. CBD project has passed the acceptance and review of the Indiana state government and third parties, and has carried out large-scale production and officially entered the mass production stage. The company expects that the total investment in this project will reach approximately US$80 million, and it will realize automated extraction and production. It has been listed as a demonstration project in the field of industrial hemp extraction in the United States by the Indiana State Government. At the same time, Hemprise has established an industrial hemp research and development center to actively carry out research and development of technology, application and formula of industrial hemp-related products. The company calls the facility the largest industrial hemp extraction facility in the United States.
On August 8, 2022, the company stated in the survey that there are currently several industrial hemp projects under negotiation. Signing a major customer cooperation meeting in the plant extraction industry will include customer factory inspections and other steps. At the same time, the company is also accelerating the application for industrial hemp-related qualifications. , generally it may take about 3 months, so it will take a certain period of time to reach a formal cooperation. We hope investors will wait patiently. If the company signs an important contract, it will be disclosed in accordance with the regulations. The intention agreement for processing signed in March is mainly because the cooperation in processing in the early stages of the industry is conducive to the promotion of the Rhine Biotech industrial hemp brand, and the profits of the cooperation are relatively ideal. Based on the current stage, it is a relatively good choice. However, the company will still position the industrial hemp extraction factory as an independent processing factory in the future and focus on its own products.
On August 26, 2022, the company stated in a survey that the company’s industrial hemp project this year hopes to achieve a revenue volume of several million US dollars or tens of millions of US dollars to achieve the goal of break-even without affecting the company’s overall performance. The key work plan for the second half of this year is to lay a solid foundation for the operation of the entire industrial hemp project. On the production side, we should do a good job in GMP certification of the factory, verify QA and QC capabilities, and ensure that the product process (recycling rate, product properties), etc. are in optimal condition; on the sales side, we should do a good job in building a sales team, understanding customer needs and sending samples, and actively Participate in exhibitions to develop markets more efficiently, etc. Currently, we are negotiating with 4-5 new customers, including customers from Thailand and other places.
On September 1, 2022, the company stated in the survey that the industrial hemp extraction project was listed as a strategic investment. The industry was still in its early stages, so the company did not set a clear revenue target for the project. Since the official mass production on June 28 this year, the factory has been operating smoothly, and important process indicators such as extraction yield at this stage are better than expected, proving that early debugging and other work have been effective, which to a certain extent will help maintain the profit margin of the business in the future. The tasks of the industrial hemp team in the United States this year mainly include certification of factory GMP qualifications, acceptance of customer supplier audits, market research, raw material procurement, and seeking long-term and stable cooperation with major customers, etc. The customers who apply industrial hemp extract have a high degree of overlap with the company’s existing customers.
On November 9, 2022, the company stated in the survey that the company’s industrial hemp extraction factory is already feeding materials for extraction, and the project is operating normally as planned. At present, the company mainly focuses on factory GMP certification, market development, customer factory inspections, raw material procurement, etc. In terms of work, customer negotiations are mainly aimed at North American customers. The company’s plant extraction business is mainly TOB, and business negotiations involve many aspects. Therefore, it takes a certain amount of time to reach cooperation, and it also requires a process from the factory being put into operation to the release of production capacity.
On February 2, 2023, the company stated in the survey that the company’s industrial hemp business in 2023 will focus on customer expansion. The management has also issued rigid work requirements. The Hemprise team must closely follow up on downstream customer research and development and sample testing, and make every effort to promote Cooperation negotiations with customers. The company positions the industrial hemp extraction factory as an independent processing factory, focusing on its own products. You may have seen the contract processing agreement signed by the company. It was signed mainly because it believed that contract processing cooperation in the early stages of the industry would be conducive to business promotion, and that this cooperation was a relatively good choice in the early stage of project development.
On February 21, 2023, the company believed in research that since last year, the price of industrial hemp products has dropped below the critical point. It can be calculated upstream from the terminal selling price. After deducting manufacturing costs, transportation costs, procurement costs, etc. from the current product price, the remaining raw material costs are already lower than the bottom line of growers’ psychological price. The weakening of raw material prices will directly affect Farmers are enthusiastic about planting, supply is shrinking, and changes in upstream volume and price are expected to drive prices out of an upward trend and the industry to re-enter a new cycle. Therefore, the company believes that the current product price level will be unsustainable. The main reason for the current sharp drop in prices is that the market has developed too fast in the past few years, with excess production capacity and inventory in the industry, far exceeding expectations for downstream demand growth, which ultimately led to low market prices.
According to the annual report of Rheinland Biotechnology in the first half of this year, the company has established a development direction focusing on synthetic biology and will further increase related investments in the field of synthetic biology. The goal is to establish a development pattern in which dual technical routes of natural extraction and biosynthesis are flying side by side. , further enriching the product matrix, and comprehensively strengthening the company’s brand empowerment capabilities through product formula output and customized application solution services.
o Rheinland Biological (002166) opened in the morning on June 19, 2023 and quickly sealed the daily limit until the close. It finally closed at 8 yuan, with the latest market value of 5.9 billion yuan. According to the company’s announcement, the company recently signed a new cooperation agreement with dsm-firmenich (DSM-Firmenich) for the next five years. The cumulative target revenue of this agreement is US$840 million, and the minimum cumulative target revenue is US$680 million. The agreement The term is 5 years.
The main reasons for the recent accelerated growth of the cannabis market
According to Wall Street News, on Wednesday, August 30th, Eastern Time, a letter dated August 29th showed that Rachel Levine, Assistant Secretary of the U.S. Department of Health and Human Services (HHS), sent a letter to the U.S. Drug Enforcement Administration (DEA). ) Commissioner Anne Milgram called for adjusting the classification of marijuana under the Controlled Substances Act to include it as a Schedule III drug. Some media said that if HHS’s proposed adjustment of classification is adopted, it will mark a major change in the status of marijuana as a high-risk drug, and marijuana will be one step away from being fully legalized.
In addition, according to China News Service, on August 16, local time, the German Federal Cabinet passed a controversial draft to legalize the use and cultivation of recreational marijuana, which will require parliamentary approval. If ultimately passed, the bill will be one of the most “liberal” cannabis bills in Europe.
As policies relax around the world, the market for cannabis products is soaring. The latest industrial hemp market forecast According to the analysis of Guoyuan Securities, industrial hemp refers to hemp with a THC mass concentration of less than 0.3%. It does not show psychoactive activity and has high fiber content. It has a wide range of uses: seeds, mosaics, leaves, bark, stems, and roots can be used. In fields such as textiles, food, daily chemicals, and medicine, mature overseas markets have added cannabinoids, mainly CBD, to more application scenarios. In terms of market size, under neutral assumptions, the global cannabis industry market size will increase to US$58.7 billion by 2024, and the CAGR from 2020 to 2024 can reach 18.88%. According to grassroots research data, the U.S. cannabis market will be worth US$100 billion in 2022, and is expected to reach US$200 billion in 2027, and is expected to double in five years. Among them, the penetration rate of atomized marijuana in the United States was less than 5% in 2015, and will reach 25% in 2022. According to this growth trend, it is expected that the penetration rate will reach 50% in 2027, and the market size will reach 100 billion US dollars.
Coupled with the new legal markets around the world, the global vaping cannabis market is expected to reach US$150 billion in 2027.
Source: Overseas Network, 2023 Rheinland First Half Annual Report, Lanfu Finance Network, Plant Extracts, Synthetic Biology Industry Network, Leading Showdown
Post time: Sep-13-2023
