This Ain’t Your Dad’s Weed Anymore…
It’s time to acknowledge the seismic movement that is occurring with cannabis right now in America… Not just from the recreational side of the house, but also based on cannabis’ value due to its medicinal benefits… this country’s openness (finally) to rewriting a targeted and harmful drug policy and moving toward social equity… and by recognizing that industries will be built around agricultural tech and the commodifying of hemp.
What we are seeing is a massive asset class developing around broad-scale plant innovation, designed to disrupt certain corporate legacy processes. As a society, we stand poised to benefit and build around this ancient cultivar.
For the uninitiated, hemp and marijuana refer to the same species of plant, Cannabis sativa. In the United States, marijuana is defined as any Cannabis sativa plant that has greater than 0.3% THC, or tetrahydrocannabinol, the primary psychoactive compound in cannabis (the stuff that gets you high). Hemp plants are defined as any cannabis plant that has 0.3% or less THC. You can think of it as marijuana and hemp having a common pool of genetic variations.
The 2018 Farm Bill changed federal policy regarding hemp, including the removal of hemp from the Controlled Substances Act and the consideration of hemp as an agricultural product. But it was not until January 2021 that the U.S. Department of Agriculture announced its final federal regulations for hemp. And it has not been without widespread criticism from business and state lawmakers.
Some of these final measures have been softened, further illustrating that as this nascent industry continues to evolve within the guardrails and legal framework it’s being given, there is still more to learn about the plant.
So how is it that it took until 2018 for a Farm Bill to describe hemp as an agricultural product? One of my partners at cannabis consulting firm Supercritical, Sparky Rose, rightly posits that 25 years from now, America will ask itself an honest question: “What the hell were we thinking with cannabis prohibition?”
Much has been written about the vast social disruption that occurred under Harry Anslinger and how he almost single-handedly created the campaign against cannabis as head of the Federal Bureau of Narcotics, a role he held from 1930 until 1962.
Concern about the rising use of marijuana and research linking its use with crime and other social problems created pressure on the federal government to act. Rather than promoting federal legislation, the Federal Bureau of Narcotics strongly encouraged state governments to accept responsibility for control of the problem by adopting the Uniform State Narcotic Drug Act, and thereby sealed the fate of the non-narcotic hemp plant.
As difficult as passing drug laws can be, enforcing them effectively, consistently, and fairly has proven to be virtually impossible. Yet it is these incongruities that had the effect of making more inroads possible, as “wiggle room” around research and development specific to hemp started to unfold. By keeping the recreational and industrial sides of the same house separate, science was able to focus on the plant as a commodity and input for applications that can, at the very least, augment the current manufacturing of commercial goods, packaging, nutraceuticals, textiles, and biofuel.
Commodity: A basic physical asset used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
Disruptive Innovation: A process by which a product or service initially takes root in simple applications at the bottom of a market and generally is less expensive and more accessible. Acceptance drives the moves upmarket, eventually displacing established competitors. Disruptive innovations are NOT breakthrough technologies that make good products better – rather they are innovations that make products and services more accessible and affordable, thereby making them available to a larger population.
According to Marijuana Business Daily’s Annual Marijuana Business Factbook, U.S. medical and adult-use cannabis sales reached at least $15 billion in 2020, an almost 40% increase from 2019. It also predicts industry employment could reach almost 300,000 full-time jobs this year, a 50% increase from 2019.
To put those figures in perspective, the number of jobs in the cannabis industry would be about the same as the beverage industry, an industry which has certainly sat up and taken notice of cannabis… as seen by the number of crossovers into the cannabis-beverage and edibles lines. This job creation is thankfully not all plant-touching or dispensary operations. These jobs are in industries that will help determine the future of how cannabis is perceived, bought, and sold.
One Word: Plastics
There has been a lot more in the print and broadcast world recently about the efforts to reduce the reliance on fossil fuels, especially when they go toward the creation of single-use plastic.
And if you thought that tracking down the global culprits would be a fool’s errand, it is easily discoverable that just 20 firms are responsible for more than 55% of the world’s single-use plastics. It’s the usual assortment of state-owned and multinational corporations dabbling in oil, gas, and chemicals. And this report, the first-ever of its kind, from the Plastic Waste Makers Index also points out that Australia leads the list of countries generating the most single-use plastic waste on a per-capita basis, ahead of the United States, South Korea, and Britain.
Single-use plastics are made almost exclusively from fossil fuels, driving the climate crisis… And because they’re some of the hardest items to recycle, they end up creating global waste mountains. Just 10% to 15% of single-use plastic is recycled globally each year. The same properties that make plastics so useful today, like durability and resistance to degradation, also make them nearly impossible for nature to completely break down.
But across boardrooms and heard loud and clear in shareholder meetings, emphasis on SRI (socially responsible investing) and ESG (environmental, social, and corporate governance) is the driver of discussion. Much of that discourse puts particular emphasis on the Earth’s source of water. Our oceans undergo a daily onslaught of plastic pollution that harms marine life of all kinds, from zooplankton and sea turtles to whales and dolphins. An estimated 17.6 billion pounds of plastic enters the marine environment every year – roughly the equivalent of dumping a garbage truck full of plastic into the oceans every minute.
Plastic has been found in every corner of the world and has turned up in our drinking water, beer, salt, honey, and more. The problem is too massive for recycling alone to solve. A meager 9% of all plastic waste ever generated has been recycled. Meanwhile, plastic production is projected to quadruple between 2014 and 2050, far outpacing recycling and resulting in more plastic in our oceans. It’s these sobering facts that have us looking for solutions.
With $226 billion in assets, New York’s pension fund is dropping many of its fossil fuel stocks in the next five years and will sell its shares in companies that contribute to global warming by 2040. The EU and its directive are adamant about this cause, by stating that where sustainable alternatives are easily available and affordable, single-use plastic products will be banned beginning in July 2021.
Canada is also taking a stand… Plastic is now considered toxic under Canada’s primary environmental law, the Canadian Environmental Protection Act. The decision, which comes despite months of lobbying by Canada’s $28 billion plastics industry, paves the way for a proposed ban on some single-use items. About 3.3 million metric tons of plastic is discarded in Canada each year, and less than 10% (about 305,000 metric tons) is recycled. The remainder goes to landfills, is incinerated, or leaks into rivers, lakes, and oceans, according to a 2019 study commissioned by Environment and Climate Change Canada.
And hats off to the countries and companies looking to provide solutions (as tentative or fragile as those measures may be). Yes, there already exists “hemp plastic.” But as the name suggests, there is still plastic incorporated, and in some instances, only 10% of plant matter is even involved in the process… So questions around biodegradability and sustainability remain.
The other problem with traditional biodegradable plastics to solve is cost. Past biodegradable polymers were far too expensive to create widespread consumer demand. To succeed, solutions also need to be affordable. Meanwhile, in the cannabis industry, every kilo of dried flower comes with eight kilos of plant waste. To comply with regulations, this waste must be destroyed. For many cannabis producers, this means incineration or mixing with their waste chemicals before sending it all to a landfill.
From Dog Waste to Innovation
The good news is there are the diamond-in-the-rough startups that emphasize the entire plant and have developed agricultural and bioscience technologies to innovate and compliantly compete. One such group is the London, Ontario-based Truly Green Plastic (“TGP”). It takes hemp biomass waste (the used fiber or pulp), introduces a proprietary bacteria and fermentation process, and generates a polymer that is 100% biodegradable, food-safe, and capable of replacing single-use plastics.
Tarek Moharram is the CEO of TGP, and like many innovative introductions, the idea behind the process came as Tarek was pondering one of life’s great mysteries.
At first, it was a simple idea… Why don’t dog-waste bags have the capacity to break down in a landfill based on contact with their organic contents? I soon realized that the products on the market at the time were over-engineered in that they could do much more than hold dog waste and, as a result, took much longer than needed to break down. Many of the so-called ‘biodegradable’ options required either limited-availability industrial composting plants or significant access to oxygen and sunlight to break the product down. Unfortunately, that is not possible when buried under layer upon layer of other types of landfill waste. I built a team of experts and challenged them to make a polymer that would naturally break down based on contact with organic matter within less than a year and leave no harmful residual material behind.
Sure sounds like disruptive innovation to me…
Or consider the New Zealand firm BioLumic. It has developed a series of ultraviolet-light “recipes” to allow the plant (and not just cannabis) to reach its full genetic expression. Through photobiology, engineering, and data science, these recipes improve yields, have demonstrated increases in cannabinoid profiles, and offer a more robust growing cycle.
BioLumic’s processes originally focused on tomatoes and soybeans, and it was while running trials in hemp for CBD that it found across-the-board improvements for both hemp and marijuana strains. The bonus was that these recipes also trigger a UV response, which makes plants more resistant to disease and pathogens. The process is clean, green, and GMO-free.
And here in the U.S., there is bio365, a company with applications also beyond just cannabis. Bio365 produces a living soil that increases the bioavailability of nutrients while reducing the need for external chemical inputs and fertilizers. Using a high-temperature, super-low-ash biochar, this grow-medium can claim a remarkably high surface area, super-high porosity, low ash, and carbon stability. This “structure” allows it to hold water in small pores, and this water becomes available to the plant as needed, rather than evaporating to the surrounding environment.
Both BioLumic and bio365 bring to the market innovative and disruptive applications meant to challenge the existing operators in agriculture and bioscience. Improved and predictable yields lead to better distribution practices and lower costs while keeping within the definition of disruptive innovation.
This Is the Future
When considering companies like those mentioned here, it does not take long to see how the innovation is disruptive, not only to cannabis production and manufacturing but also to existing technologies.
The challenge is that this is an industry that’s still federally prohibited… And companies are trying to develop a product class that can operate with a less-than-cohesive set of rules, which is the case with hemp.
So who are the winners so far as this product class unfolds? Here in Chicago, the city where colleges have put together a Cannabis Advisory Committee to help schools develop curricula around cannabis and hemp. These classes are built around restorative justice in cannabis, urban agronomy in hemp, and cannabis as a CPG. The students of today will lead the industry of tomorrow… And the opportunities far exceed plant-touching or dispensary work.
Opportunities also exist for investors as they key in on ESG- and SRI-focused companies. While many of these technologies are being introduced by startup and pre-revenue companies, the astute investor will be able to identify those that have met their milestones, have a reasonable valuation, demonstrate scalability, and are positioned well to attract takeover attention. And we know that many seasoned investors are always on the hunt for the next Uber, Airbnb, Amazon, or Zoom. (Hint: It’s cannabis.)
It took decades for the U.S. to recognize cannabis for its medical efficacy and commercial applications, and much work still remains. Sadly, years were wasted as Anslinger and the Federal Bureau of Narcotics resorted to fear tactics, misinformation, and appeals to xenophobic and racist sentiments. And the irony is that when Harry Anslinger – drug czar and author of Marijuana, Assassin of Youth – died in 1975, it’s reported he did so with morphine in his system.
Jay Caauwe is a well-traveled Chicagoan that still resides within 3 blocks of where he was born. Before co-founding Supercritical LLC, a cannabis and hemp advisory and management solutions firm, Jay was drawn by the allure of open outcry, beginning at the Chicago Board of Trade in 1983. Working through the ranks, he became a member of the CME Group in 1987, trading stock index futures and options. He left the trading floor in 2004 to join the Chicago Board Options Exchange, where he oversaw the exchanges global business development effort for the CBOE’s futures products based on the VIX Index. With gas in tank and a recognition of the commodity like attributes of hemp and the social, medical and industry disrupting tendencies of cannabis in general, Jay found his new calling with Supercritical in 2019.