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AG-TECH INDUSTRY OVERVIEW
Real American’s core-centric business model is providing bio-nutrients, grow light solutions and bio-fertilizer products to urban commercial cultivators specific but not limited to the cannabis, industrial hemp, and hydroponic sectors.
As these markets are subject to rapidly changing laws, regulations, administrative practices and consumer perception, it is useful for interested parties and potential investors to be familiar with the key distinction between industrial hemp and cannabis (marijuana) as they view industry projections and market opportunities in these high-growth target markets.
Distinction between Cannabis (Marijuana) and Industrial Hemp
While both hemp and marijuana are derived from the genus Cannabis Sativa, both plants share similarities. Due to each plant’s biological structure, they have differences, most notably the amount of the psychoactive chemical tetrahydrocannabinol (THC), a cannabinoid with the capability of producing a psychoactive “high.” Hemp contains trace levels of up to 0.3 percent of THC. Marijuana, on the other hand, is used precisely because of its higher TCH content upwards of 20% to 35%.
In 1937, Congress passed the Marijuana Tax Act which taxed trafficking in marijuana. The Marijuana Tax Act excluded industrial hemp from the definition of marijuana but placed all cannabis culture under the regulatory control of the U.S. Treasury Department. It also required the registration and license of hemp growers with the federal government to restrict the production of marijuana in the United States.
However, when Congress repealed the Marijuana Tax Act in favor of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (“Controlled Substances Act”) or “CSA”), it abolished the distinction between hemp and marijuana, and both plants became controlled substances under the Act. The legality of cannabis and industrial hemp under federal and state laws are covered in the following section.
Cannabis/Industrial Hemp Federal Laws
Cannabis (marijuana) continues to be classified as a Schedule 1 drug under the Controlled Substances Act. U.S. Attorney General William Barr has stated that he would uphold the directive issued under the Cole Memorandum dated February 14, 2014, to protect state-legal marijuana businesses. He stated that the discrepancy between state and federal law “is untenable” and needs to be fixed by Congress, as state legalization is a “backdoor nullification of federal law.”[1]
Farm Bills and Omnibus Law
On February 7, 2014 President Barack Obama signed the Farm Bill (“2014 Farm Bill”). Section 7606 provided for the “Legitimacy of Industrial Hemp Research.”
In 2016 the Drug Enforcement Agency (“DEA”), US Department of Agriculture (“USDA”) and the Food and Drug Administration (“FDA”) issued a joint statement detailing guidelines for the growth of industrial hemp as part of a state-sanctioned research program. Those guidelines stated that hemp can only be sold in states with pilot programs, plants and seeds can only cross state lines as part of permitted state research programs, and seeds can only be imported by individuals registered with the DEA.
Because of the 2014 Farm Bill, as of 2017, at least 39 U.S. universities and dozens of researchers have begun studying industrial hemp. Additionally, clinical studies are now investigating anecdotal uses of CBD to treat various medical conditions. In the U.S., clinical trials are investigating CBD for the treatment of 26 medical conditions.
To eliminate confusion and provide clarity regarding the reach of the 2014 Farm Bill, Congress passed critical language in the Consolidated Appropriations Act for Fiscal Year 2016 (“Omnibus Law”). Since extended, the Omnibus Law prohibits agencies, including the DEA from expending federally appropriated monies to interfere with or otherwise frustrate agricultural pilot programs established under the 2014 Farm Bill.
2018 Farm Bill
With the passage of the 2018 Farm Bill signed by President Donald Trump, industrial hemp was classified as a legal agriculture crop/commodity on December 20, 2018 allowing intrastate and interstate sales. It allows hemp cultivation as a commodity crop broadly, not simply pilot programs for studying market interest in hemp-derived products. It explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport or possession of hemp-derived or infused products, so long as those items are produced in a manner consistent with the law. Under Section 10113 of the 2018 Farm Bill, hemp cannot contain more than 0.3 percent THC, the chemical compound found in cannabis that produces the psychoactive “high.” Any cannabis plant that contains more than 0.3 percent THC would be considered non-hemp cannabis – or marijuana.
[1] https://www.investopedia.com/articles/investing/111015/future-marijuana-industry-
State Laws – Cultivation of Cannabis/Industrial Hemp
Cannabis Cultivation by State
There are 33 states where the use of cannabis, both medical and adult-use is legal and 14 additional states where the laws limit THC content. These 14 states include Wyoming, Kansas, Texas, Iowa, Wisconsin, Indiana, Kentucky, Tennessee, Mississippi, Alabama, Georgia, South Carolina, North Carolina, and Kentucky. These states along with Idaho, South Dakota and Nebraska (which prohibit cannabis for any use) do not allow cannabis cultivation.
Currently there are 46 states that allow cultivation of hemp via enacted legislation to establish industrial hemp cultivation and production programs. New Hampshire, however, passed its state hemp law requiring its farmers to license with the US Department of Agriculture, which federal licensing has not yet been formulated. There are three states still prohibiting industrial hemp cultivation: Idaho, South Dakota and Mississippi. State policymakers have taken action to address various policy issues – the definition of hemp, licensure of growers, regulation and certification of seeds, state-wide commissions and legal protection of growers.
INDUSTRY ANALYSIS / MARKET OVERVIEW
Cannabis Industry Projections
As cite above, as of this date, no fewer than 33 of the 50 states in the U.S. (plus the District of Columbia) have legalized Cannabis either for medicinal or recreational use, with roughly one in five states having approved Cannabis for both uses, and more are in the offing. According to Statista, U.S. medical marijuana sales are projected to total $24.07 billion in 2025 with $13.22 billion coming from medical cannabis and $10.86 billion derived from adult cannabis sales. Importantly, regardless of the final use of cannabis (whether adult or medicinal use), the cultivation of cannabis is the beginning step of which Real American is seeking its market entry with its organic bio-nutrients targeted to the Cannabis commercial cultivator.
The Opportunity – Value Added Cannabis Cultivation Production
Further, in determining key differentiators of the quality of cannabis grown, a Marijuana Business Daily study found that wholesale cultivators chose high quality (46%), organically grown (23%) and sustainability (8%). This value-added cultivation, such as sustainable, high quality and organic production could emerge as a key segment similar to the food industry, especially if federal legalization occurs. These practices for cannabis cultivators could position Real American’s bio-nutrient products for this up and coming growing segment in the industry.
U.S. Hemp Industry Projections
With hemp-derived CBD gaining in popularity – in line with health, wellness and anti-pharma trends – and product availability and variety increasing, the U.S. market is on track to grow $23.7 billion through 2023, up from the current value of $4.8 billion, a 34% CAGR, according to Brightfield Group.[1] Thousands of farmers are ramping up production in response to the passage of the 2018 Farm Bill, the expansion of state industrial hemp programs and the promise of profits.
Farmers planted an estimated 288,000 acres of industrial hemp in the U.S. in 2019 up from 78,000 acres in 2018. The U.S., China and Colombia lead global industrial hemp cultivation in 2019 in the number of acres planted, according to Brightfield Group’s “Hemp Cultivation” report.[2] In the US, the profit potential of CBD is driving the growth in hemp cultivation, with about 87% of the 288,000 acres expected to be used for hemp-derived processing in 2019.
On a per-acre level, hemp for CBD could potentially generate $45,203 in revenue, compared to $773 for corn, $235 for wheat or corn, $235 or $461 for soy.
The Opportunity for Real American - Organic Hemp Practices
As more hemp is being produced and safety product assurance is needed for consumers, cultivators see several benefits toward going organic.
The hemp industry predicts organic, sustainable practices will increase as more consumers demand information on hemp plant origin, organic farming practices, product composition and sustainability. As mainstream brands showcase their farmers in their advertising and market organic, cruelty-free and hyper-local manufacturing practices on their packaging to assure consumers their products are natural, safe and worth a premium price.[3] Real American plans to target this sector with its formulated bio-fertilizer products especially for hemp cultivation.
Additional Markets Sectors within other Ag-Tech Industries
The Company has further identified additional niche market sectors within the Ag-Tech industry and Lighting industry that supports its organic, sustainable business model products.
Organic Farming and the Bio-Fertilizer Market
Organic farming has the potential to provide advantages in terms of environmental protection, conservation of non-renewable resources, improved food quality, reduction in output of extra product and reorientation of agriculture towards the change in market demand. In addition to releasing nutrients as organic fertilizers break down, they improve the structure of the soil and increase its ability to hold water and nutrients. Organic residues have the advantage over standard fertilizers of adding other nutrients such as Nitrogen, Calcium and Magnesium and micronutrients. They also assist in maintaining soil organic matter.
The bio-fertilizer market covers all organic fertilizers that is consequent from organic sources comprising living microbes, which when applied to seed, plant and soil stimulate growth by supplying essential nutrients. The use of these fertilizers may result in an increased relative economic benefit with respect to the use of conventional fertilizers, in terms of saving fertilizer costs, enhancing nutrient efficiency, and increasing crop yield.
The global organic fertilizer market is valued at $6.73 billion in 2018 and expected to reach $15.5 billion by 2025 with a CAGR of 12.65% over the forecast period.[4] North America is projected to have the largest share of this market projected at 27.7% or approximately $5 billion by 2025.
Light Solutions for the Grow Lighting Industry
Farmers are increasingly shifting toward hydroponic systems for plant cultivation, due to limited access to outdoor space for gardening and cultivation. Sunlight utilizing solar and/or electrical illumination for indoor farming applications are key elements in the development of hydroponic systems. Thus, grow light solutions are increasingly being adopted for hydroponic systems which is expected to drive the grow light market growth for the forecast period.
The global grow light market is valued at $5.47 billion in 2019 with a CAGR of 19% CAGR projected at 2023.[5] The Company, through its Natural Sunlite™ product, plans to target this market growth sector.
RLAB Trademarks and Intellectual Property
Our US trademarks, brand names, URL's, and patent-pending grow light technology -- supported by dedicated and experienced personnel -- together with bio-tech advances in soil conservation, rejuvenation and sustainability -- will be the bedrock of RLAB's business assets going forward. All our branded products, as cited above, possess descriptive and/or "climate" friendly names, led by RESURGENT, GROW CANNA CLIMA BLOOM, CLIMA-CLONE, CLIMA-GLO and NATURAL SUNLITE.
[1] https://www.cannabisbusinesstimes.com/article/projections-us-leads-in-global-hemp-cultivation/
[2] https://www.cannabisbusinesstimes.com/article/projections-us-leads-in-global-hemp-cultivation/
[3] https://www.forbes.com/sites/irisdorbian/2019/12/27/expert-offers-predictions-for-the-hemp-derived-cbd-market-in-2020/#41228dc01391
[5] https://www.businesswire.com/news/home/20190820005336/en/Global-Grow-Light-Market-2019-2023-19-CAGR
