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Newsletter 37: Chinese Companies Prepare to Penetrate CBD Market

EXECUTIVE SUMMARY

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• Aleafia Health Enters German Medical Cannabis Market

• Chinese Companies Prepare to Penetrate CBD Market

• Canadian Retail Market Struggles to Meet Demand

• Cannabis Banking Bill Gains Momentum With Prosecutors’ Support


COMPANIES: Aleafia Health Enters German Medical Cannabis Market With Joint Venture

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Aleafia Health Inc. (TSX: ALEF, OTC: ALEAF) has announced its entrance into the German medical cannabis market via its joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. The joint venture will purchase Aleafia Health branded cannabis oils for use in clinical trials and distribution to German pharmacies. Aleafia Health’s subsidiary, Emblem Cannabis Corp., is the majority shareholder of the joint venture with 60% percent ownership, with Acnos owning the remaining 40%.


The German medical cannabis market has grown rapidly since legalization in 2017, and is projected to produce revenues of $5 billion in 2025 for cannabis producers, according to a report by the Bank of Montreal. Certain market dynamics exist in Germany: including reimbursement of patients’ cannabis purchasing costs, with medical cannabis being covered through private and public health insurance, a phenomenon that is non-existent in North America.


MARKETS: Chinese Companies Hope to Capitalize on Cannabis Boom

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As the stigma of cannabis subsides and the global demand for CBD rises, Chinese entrepreneurs have been quietly hustling to cultivate cannabidiol (CBD). Two of China’s 34 regions have been leading a boom in cultivating hemp to produce CBD, the high demand non-intoxicating compound that has soared in demand in the United States and beyond. Domestically, China permits the sale of hemp seeds and hemp oil and the use of CBD in cosmetics, but it has not yet approved cannabidiol for use in food and medicines.


In 2017, the Hanma Investment Group became the first company to receive permission to extract CBD in the Yunnan region of southern China, and is now one of four companies in Yunnan that have received licenses to process hemp for CBD. In February, the province granted licensing to three subsidiaries of Conba Group, a pharmaceutical company based in Zhejiang Province. Elsewhere in Qingdao, Huaren Pharmaceutical, said recently it was applying for permission to grow hemp in greenhouses, which already line the nearby landscape.


Hanma is already tapping into its global ambitions by acquiring an extraction plant in Las Vegas, which is expected to begin production soon, while also planning a facility in Canada. Mr. Tan, the chairman of Hanma Group, said he hoped that China, with the world’s largest market, would follow the lead of the United States, which he called “the best-educated” market for the benefits of cannabis.


MARKETS: Canadian Retail Market Continues to Struggle

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Since recreational legalization in October 2018, Canadians have struggled to buy cannabis as a result of the low number of storefronts. Canadian investment researchers AltaCorp Capital tackled a question in a recent effort examining Colorado’s store density and how many Canadian retailers would be needed to satisfy retail demand.


Colorado legalized recreational cannabis in 2014, and today it has more than 560 recreational outlets for a population of around 5.7 million. Colorado has approximately 10 stores for every 100,000 residents. Conversely, Canada has just over 360 actual or planned retail locations – or 10 percent of the 3,640 locations that would be needed to satisfy Canada’s population of 37.1 million. (according to AltaCorp).


The shortage is worse in some parts of the country than others. In Ontario, the country’s most populous province, the first licensed cannabis stores didn’t open until April, and to date, only 25 store licenses have been issued. The planned 25 stores amount to 0.2 stores for every 100,000 residents. AltaCorp found that Ontario would need to add nearly 1,400 stores to satisfy demand.


POLICY: Cannabis Banking Bill Gains Momentum With Prosecutors’ Support

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The attorneys generals of 33 states and five U.S. territories said Wednesday they support congressional legislation that would allow cannabis companies in Colorado and elsewhere to use banks without fear of federal repercussions. As a result, the National Association of Attorneys General has adopted support of U.S. Rep. Ed Perlmutter’s bill as its official policy - essentially expressing the backing of the nation’s law enforcement. Notably, the law enforcement support appears to be bi-partisan: eight of the supporters are Republicans, hailing from states as conservative as Oklahoma, Utah and Arkansas.


The SAFE Banking Act, would provide legal protection from prosecution for banks and federally-regulated creditors that do business with state-legal cannabis businesses. The Act is expected to head soon to the full House of Representatives for consideration. On March 28, 2019, the US House Financial Services Committee endorsed the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act of 2019) on Thursday by a 45-15 vote, the most significant cannabis-related legislation to get this far in the history of Congress.