CBD Boom Spreads to Hong Kong as China Resists: Cannabis Weekly

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From government-produced videos to posters plastered on subway walls, Hong Kong’s staunch opposition to cannabis is clear. But as it takes a more liberal approach to CBD, consumer demand is soaring.

Cannabidiol, or CBD, is popping up in cosmetics and beverages, while new businesses are catering to customers who hope the substance can ease pain or soothe anxieties. Hong Kong’s first CBD café, named Found, has boosted monthly sales fivefold since opening in June.

The city’s “CBD market is nascent,” said Rohit Dugar, founder of Young Master, a craft brewery that recently introduced a CBD-infused beer. “But early indications are that it has tremendous potential.”

The boom, mirroring surges in the U.S. and Europe, stands in stark contrast to many Asian countries, which have remained conservative on the topic of cannabis. Last month, China proposed a ban on CBD in cosmetics, and the compound is not allowed in food and drinks.

Hong Kong’s openness stems from a decision in late 2018 not to crack down on CBD. In the wake of cannabis legalization in Canada, Hong Kong’s Secretary for Security said in an open letter that CBD is not classified as a dangerous drug. That’s not the case for THC, the psychoactive ingredient in cannabis, and even trace amounts of it are prohibited in products in Hong Kong. CBD doesn’t have the perception-altering properties of THC.

The city has been quick to embrace CBD. Young Master’s infused beer, introduced in August, now sells about 10,000 cans per month and Dugar expects sales to double over the next year. A coffee shop called Elixir has allowed customers to add CBD drops in drinks, and owner Rity Wong said about 300 people tried it in February, compared with just 10 in the first month.

Found, meanwhile, has seen more locals coming in after initially drawing expats, according to Fiachra Mullen, chief marketing officer at parent company Altum International.

The local market still has gray areas. Companies aren’t allowed to claim medical benefits unless the product is classified as a prescription medicine, and there are currently no registered pharmaceutical products in Hong Kong that contain CBD. But the government has issued little guidance on wording, and the rule “is not very actively enforced,” according to Conor O’Brien, an analyst at Prohibition Partners.

As CBD catches on, some companies are already looking to expand. Mainland China could be a huge market someday, given its size and openness to activities such as hemp cultivation, but the proposed CBD ban is an obstacle.

Altum International wants to avoid getting tripped up by China’s regulations, Mullen said, especially after witnessing the country effectively banning online sales of e-cigarettes in 2019 after they flooded the market. The company plans to prioritize Australia, Japan and Taiwan before tackling China.

“Everyone knows how big China is,” Mullen said. But it’s “very hard to make money in China without falling into some kind of regulatory problem.”

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NUMBER OF THE WEEK

  • $5 billion: The market opportunity created by New York’s plan to legalize adult-use marijuana, according to Stifel analyst W. Andrew Carter.

QUOTE OF THE WEEK

“Though not everyone who uses a drug will develop addiction, adolescents may develop addiction to substances faster than young adults. This study provides further evidence that delaying substance exposure until the brain is more fully developed may lower risk for developing a substance use disorder,” Nora Volkow, director of the U.S. National Institute on Drug Abuse, said of a study showing that cannabis is more addictive for younger users than previously believed.

WHAT YOU NEED TO KNOW

  • New York Gov. Andrew Cuomo signed legislation allowing the licensing of marijuana dispensaries, with sales expected to start next year.
  • Senate Majority Leader Chuck Schumer is drafting a bill with Finance Chair Ron Wyden of Oregon and New Jersey Senator Cory Booker that would end federal cannabis prohibition.
  • Green Thumb Industries Inc. said Wednesday that it has no evidence of an open investigation by federal authorities after a Chicago Tribune report said investigators are looking into potential pay-for-play violations.
  • Greenlane Holdings Inc. and KushCo Holdings Inc., providers of cannabis industry packaging, accessories and services, are planning to merge.
  • Teenagers’ addiction rates for cannabis are about the same as for prescription opioids, according to a new study of drugs and youth. The findings contradict widely-held perceptions that cannabis isn’t particularly addictive and may attract attention amid a broad U.S. push to liberalize its use.

EVENTS

MONDAY 4/5

  • Planet 13 Holdings Inc. reports fourth-quarter earnings after markets close.

TUESDAY 4/6

  • Rubicon Organics Inc. reports fourth-quarter earnings before markets open.
  • 4Front Ventures Corp. reports fourth-quarter results after markets close.

THURSDAY 4/8

  • Scotts Miracle-Gro Co. holds a virtual investor and analyst day.
  • KushCo will report second-quarter earnings post-market.

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