Hemp Industry in China Shuffled: Some Enterprises Give up while Others Persist

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"According to TF Securities Co., Ltd, the application of industrial hemp and its extractions in China maintains a rising momentum in 2020, and the new industry vanguard in the second phase is still in the incubator."
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Currently,over 40 listed enterprises in China have been reported to invest and pioneer the industry of industrial hemp. Their project progress varies dramatically. Some enterprises like Zixin Pharmaceutical,Fangsheng Pharmaceutical and Fuan Pharmaceutical embrace blossoms, while others like Erkang Pharmaceutical, Shouxiangu pharmaceutical, and Huaren Pharmaceutical bear no fruits and have to terminate their programs. 

According to TF Securities Co., Ltd, the application of industrial hemp and its extractions in China maintains a rising momentum in 2020, and the new industry vanguard in the second phase is still in the incubator.

Several Enterprises Quitted the Hemp Industry

At the beginning of 2019, the new term "industrial hemp" came into people's sight. Now, more than a year later, only Yunnan and Heilongjiang provinces have been approved by the government to plant, process, and sell industrial hemp legally. There are significant uncertainties about whether to loosen the domestic application regulation and when to license hemp application. Some enterprises thus have to give up in the process of promoting the project.

In March 2019, Huaren Pharmaceutical posted to build a green industrial hemp plant in Yunnan, which would be China's first industrial hemp greenhouse planting base.

On July 24 this year, Huaren pharmaceutical announced that it had decided to terminate the industrial hemp project because of uncertainties in the economic situation and market environment at home and abroad.

On March 28, 2019, Erkang Pharmaceutical also announced that the company intended to subscribe for no more than 10% of the shares of a local hemp company in Yunnan to carry out research and exploration in the field of industrial hemp. On June 12 this year, Erkang Pharmaceutical announced that the above cooperation intention was terminated because the potential partners of the proposed fund's final investment target could not reach an agreement on the valuation of the target.

Shouxiangu Pharmaceutical announced on April 28 this year that the Yunnan Shouxiangu branch company had not obtained the industrial hemp planting license. The project had made no substantial progress, so it decided to cancel the established Yunnan Shouxiangu branch company.

COVID-19 Affected the Progress of Hemp Project

In addition to the enterprises that terminated the project, enterprises like Natural Ingredients Co. and Guizhou Bailing Co.frankly said that the project progress was not very smooth due to COVID-19.

Natural Ingredients Co. announced to enter industrial hemp in April 2019 and planned to invest in the construction of factories and R & D centers in the United States. As of June 30, 2020, more than 50% of the civil works and 30% of the public facilities have been completed for the industrial hemp project. The plant extraction production equipment is also under construction. However, the company pointed out that the impact of the global pandemic situation may have adverse effects on the follow-up construction, delivery, installation, and commissioning of production equipment.

Guizhou Bailing Co. also mentioned that due to the pandemic's impact, the industrial hemp cooperation project was suspended.

Many Enterprises'Hemp Projects Are Still in Progress

Despite the challenges and uncertainties of the industry,there are many enterprises keeping moving their hemp project on.

On September 5, 2019, Fuan Pharmaceutical announced that it planned to acquire 51% equity and corresponding shareholders' rights and interests of Red Realty for $73 million. The latter owned the only planting and processing site approved for medical marijuana cultivation and processing license and planned to expand the R&D and production base of medical marijuana and CBD products in the plot. According to Fuan's semi-annual report of 2020, Fuan Pharmaceutical has completed the acquisition of Red Realty. In the next, Fuan will actively promote its medical marijuana project's construction to be completed on time, put into operation as soon as possible, and complete the profit target of this year.

Fangsheng Pharmaceutical mentioned in the semi-annual report of 2020 that based on the successful trial planting in the previous year, the planting area of industrial hemp was steadily expanded in the first half of this year. In addition, the construction of the industrial hemp extraction and processing base in Chuxiong, Yunnan Province, was progressing smoothly, and the development of various end products was also carried out orderly.

Zixin Pharmaceutical introduced industrial hemp seeds from its Dutch subsidiary Fytagoras into China in the first half of 2020 and has completed the introduction of three kinds of industrial hemp seeds. At the same time, it planned to launch products made of industrial hemp and provide technical services related to the cultivation of industrial hemp for other enterprises by using the technology of breeding, cultivation, bioactive components research, and compound extraction of industrial hemp, to promote the industrial layout of the company in the domestic industrial hemp field as soon as possible.

Conclusion

The industry has been shuffled by the complexity of the situation in 2020. Although some enterprises have quitted, we can notice that those with flexible management strategies are competing for the hemp industry's bellwether in the future. And the new investors shall be more rational before entering the industry.

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