Shifting Regulations Signal of New Horizons for the Cannabis Industry

The hemp industry made headlines recently, as the U.S. Department of Agriculture (USDA) proposed new draft rules. Currently, under federal regulations, only hemp plants with 0.3% THC or lower are allowed to be commercialized. However, under the new rules, cannabis plants with up to 0.5% THC would be eligible for commercialization. Currently, the agency noted that any farmers who produced hemp which test at 0.3% to 0.5% THC levels must dispose of their inventory. The USDA noted that many of these farmers take necessary steps and precautions to ensure their hemp meets regulatory guidelines, however, sometimes they still produce unacceptable hemp. The new proposal will provide farmers with a slight cushion in order to avoid potential charges as well as profit losses. The proposal by the USDA hints that regulators may be toning down cannabis regulations in general amid widespread legalization efforts. However, to note, 0.5% THC levels are still very minuscule and will not cause psychoactive effects on the consumer. Nonetheless, the draft rules show that federal regulators are beginning to change regulations within the cannabis marketplace as the industry continues to advance. And while hemp-derived products are having a prominent impact throughout the U.S., states that have legalized adult-use cannabis are flourishing from increased marijuana-derived product sales. For instance, in the past six months, states such as OregonColorado, and Washington had over 40% of adults 21 years and older try cannabis products. Notably, Colorado is already on track to report another record-breaking year in cannabis sales. And as states like Michigan and Illinois prepare to kickstart their recreational programs, the North American cannabis market is expected to witness immense growth. Specifically, according to data compiled by IMARC Group, the North American cannabis market was valued at USD 10.1 Billion in 2018. By 2024, the market is expected to reach USD 43.19 Billion, growing at a CAGR of 27.4% during the forecast period from 2019 to 2024. Pasha Brands Ltd. (OTC: CRFTF) (CSE: CRFT), Canopy Growth Corporation (NYSE: CGC) (TSX: WEED), HEXO Corp. (NYSE: HEXO) (TSX: HEXO), Curaleaf Holdings, Inc. (OTC: CURLF) (CSE: CURA), Valens Groworks Corp. (OTC: VGWCF) (TSX-V: VGW)

The U.S. is the primary global cannabis market driver, however, cannabis is still federally illegal in the country. On the other hand, Canada is just the second nation to legalize cannabis so far, following in Uruguay’s footsteps last year. And while the U.S. is a much larger market in terms of revenue, many cannabis operators have decided to establish operations north of the border, in Canada. However, Canada’s adult-use cannabis sales are significantly lower than certain U.S. states’. Specifically, during the first nine months of legalization, Canada reported a total of USD 545 in adult-use cannabis sales, according to Statistics Canada. In comparison, Colorado reported USD 1.15 Billion in marijuana sales from January to August this year. As such, it is important to note that Colorado’s recreational market is much more developed because the state legalized adult-use back in 2014. Nevertheless, Canada’s market is continuing to ramp up as provinces witness their retail and online sales grow. Additionally, while many consumers may simply prefer standard cannabis from dispensaries, avid consumers have sought after high-quality and organic products. Notably, the development of the “craft cannabis” market has added value to the overall industry. Craft cannabis is the precise process of growing and tending to each and every individual plant to ensure premium products. Unlike large licensed producers, craft cannabis cultivators generally avoid using machinery, which can diminish cannabinoid content within the buds. Instead, craft producers harvest each plant by hand to ensure the buds stay intact. Additionally, craft producers also avoid using artificial byproducts which can also affect the cannabinoid output outcome. Consequently, producers are required to monitor each plant for quality checks to avoid potential molding or outbreaks that may destroy harvests. And as a result, craft cultivators are able to produce high-quality strains that large licensed producers are unable to compete against in terms of quality. “Farm-to-table isn’t just a food trend. Whether for health, quality or ethical reasons, people want to smoke farm-fresh cannabis, too,” said Rose Mattio, Founder of Rosie Mattio Public Relations. “More and more consumers desire a tangible connection with the cannabis flower and care about small farm values such as sustainability, craftsmanship, organic principles and hands-on cultivation techniques.”

Pasha Brands Ltd. (OTC: CRFTF) (CSE: CRFT) is also listed on the Canadian Securities Exchange under the ticker (CSE: CRFT). Earlier this week, the Company announced that, “Between 2014 and 2018 global sales of legal cannabis more than tripled from $3.4 billion to $10.9 billion, according to the State of the Legal Cannabis Markets report from Arcview Market Research. BDS Analytics calls for a near-quadrupling from 2018 levels to $40.6 billion by 2024 at an annual growth rate of 21.9%. This has led many people to wonder, why the recent market downturn in the cannabis sector?

‘Legal cannabis, particularly in Canada, has been struggling under the weight of burdensome regulations, poor supply-chain management, and quality issues,’ said Jamie Shaw, Chief Communications and Culture Officer for Pasha. ‘Coupled with that, companies in the sector were slow to deliver the results expected and were generally seen as overvalued. Share prices were determined at a time when there were relatively few licences that seemed to have a stranglehold on the regulated marketplace.’

While these challenges are most pronounced in today’s market, for Pasha it has been an affirmation of its business plan. ‘We never bought into the big-box mentality that’s causing many of these problems,” Shaw said. “Pasha has focused on small batch, craft producers, and has been meeting its goals at a quick pace, with the first micro-cultivation harvest expected in December.’

Pasha has been on-boarding brands and people that made legalization possible, including Baked Edibles, Earth Dragon Organics, and Beard Brothers Collective, and has acquired a Health Canada licensed facility on Vancouver Island. Pasha expects to be the first licensed, nation-wide, all-craft company to be operational by end of Q4 2019/early Q1 2020.

Of the first 5 micro-licences issued by Health Canada, Pasha has signed supply agreements with all of them. Pasha also has signed supply agreements with 60 more applicants currently in the CTLS queue with Health Canada, and another 40 navigating the licensing process with Pasha subsidiary, BC Craft Supply Co. Ltd. With 100 micro-cultivators each permitted to produce up to 500kg per year, Pasha could have the ability to bring up to 50,000kg per year of high-quality craft cannabis to Canadian consumers.

‘The legal market has yet to see products with the same care and attention to detail that went into the highest quality, illicit products,” said Patrick Brauckmann, Executive Chair of Pasha Brands. “Pasha is committed to bringing products to the marketplace that put the consumer first.’

Partnered with powerful distributors like Great North and developing innovative industry solutions like Craft Labs, Pasha looks to disrupt how people think of legal cannabis.

About Pasha Brands: Based in Vancouver, British Columbia, Pasha is a vertically integrated, prohibition-era brand house firmly rooted in BC’s craft cannabis industry, which boasts an international reputation. With proven capabilities in cannabis cultivation, genetic research and development, product processing, and retail, Pasha is uniquely positioned in the new legal cannabis market through its network of hundreds of craft cannabis suppliers under the Pasha umbrella. Pasha subsidiary, Medcann Health Products Ltd., is a Health Canada licensed cultivator and processor with a licence to sell medical cannabis products in Canada. Pasha and BC Craft are also developing a craft cannabis campus, which is dedicated to bringing craft quality into the newly legal cannabis market in Canada. BC Craft is driven to assist craft growers in obtaining security clearance and licensing to grow as micro-cultivators, specializing in education and compliance to bring growers into the regulated cannabis supply market. Pasha’s common shares trade on the CSE under the symbol “CRFT” and on the FSE under the symbol “ZZD”. For more information, please visit www.pashabrands.com.”

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Canopy Growth Corporation (NYSE: CGC) (TSX: WEED) is a world-leading diversified cannabis, hemp and cannabis device company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms, as well as medical devices through Canopy Growth’s subsidiary, Storz & Bickel GMbH & Co. KG. Canopy Growth Corporation recently announced that it had partnered with one of the largest global sellers of premium cannabis accessories, Greenlane Holdings, Inc., that gives Greenlane exclusive distribution rights of Storz & Bickel vaporizers throughout the United States. Storz & Bickel, a subsidiary of Canopy Growth based in Tuttlingen, Germany, has a 22-year history as the global leader in vaporizer design. The company has won accolades for developing an automated and internationally certified factory, achieving ISO 13845 certification in 2009 and exporting to over 50 markets around the world. Storz & Bickel first introduced the world-renowned Volcano® product line in 2000 and since then has worked tirelessly to continue innovating and perfecting the industry’s leading tabletop vaporizer, in addition to their successful portable handhelds including the Crafty® and Mighty® devices. “We have worked with Storz & Bickel since Greenlane’s inception in 2005 to launch dozens of its products, introducing the legendary Volcano vaporizer to the U.S. market and establishing it as the gold standard of desktop vaporizers,” said Aaron LoCascio, Chairman and Chief Executive Officer of Greenlane. “The extension of our relationship through this exclusive agreement with Canopy Growth will allow us to introduce even more North Americans to this premiere brand and pristine line of vaporizer products.

HEXO Corp. (NYSE: HEXO) (TSX: HEXO) is an award-winning consumer packaged goods cannabis company that creates and distributes innovative products to serve the global cannabis market. HEXO Corp. recently announced that it had received licenses from Health Canada for its cannabis Centre of Excellence in Belleville, Ontario, for research, and for the sale of cannabis topicals, extracts, edibles and beverages from its flagship Gatineau campus. While a Processing Licence provides for testing on live plants, fresh and dried plant material, seeds, and oil, a Research and Development Licence significantly expands the scope of work that can be conducted on cannabis and its derivatives. The Company plans to conduct research and development at its Vaughan and Montreal Innovation, Development and Engineering hubs, as well as at its Centre of Excellence in Belleville and in other facilities. “The research licence will allow us to take our innovation work to the next level, with testing on derivative products, including taste testing. Consumers have high expectations for their packaged goods experiences, and cannabis will be no different,” said Sebastien St-Louis, Chief Executive Officer and Co-Founder of HEXO Corp. “We are committed to not only ensuring a quality consistent experience but to also guaranteeing that experiences powered by HEXO meet these expectations.”

Curaleaf Holdings, Inc. (OTCQX: CURLF) (CSE: CURA) is the leading vertically integrated multi-state cannabis operator in the United States. Curaleaf Holdings, Inc. recently announced that it had closed the previously announced acquisition of the cultivation and processing assets of Acres Cannabis in Amargosa Valley, NV. This includes 269,000 sq. ft. of operating cultivation facilities and 3,200 sq. ft. processing lab. The transaction was announced earlier on March 18, 2019. With the closing of Acres Cultivation, Curaleaf significantly increases its cultivation and processing operations in Nevada, while maintaining the highest industry standard across all facilities. This marks an important step in the Company’s expansion west. Its expanded production capabilities will allow the Company to further supply the market with high quality, reliable products. “The completion of the cultivation and processing component of the Acres transaction is further evidence of execution of our plan to expand our business through a combination of strategic M&A, disciplined operations and organic growth,” said Chief Executive Officer Joseph Lusardi. “We are grateful for the diligence and attention of the state regulators and for their thorough and thoughtful review.”

Valens Groworks Corp. (OTCQX:VGWCF) (TSX-V:VGW) is a multi-licensed, vertically-integrated cannabis company focused on being the partner of choice for leading Canadian and international cannabis brands by providing best-in-class, proprietary services including CO2, ethanol, hydrocarbon, solvent-less and terpene extraction, analytical testing, formulation and white label product development. Valens GroWorks Corp. recently announced that it had received an amended license from Health Canada and continues to make significant progress with the build out of the adjoining state of the art white label manufacturing facility scheduled for completion by H1 2020. Under the new license, Valens is now authorized to manufacture and supply oil products directly to provincial distributors and other authorized Canadian retail supply channels. Valens will immediately start leveraging this amended license to expand services provided to its white label manufacturing partners, delivering retail ready products including tinctures and gel caps. The Company plans to further expand its retail ready product offerings to include vaporizer cartridges, beverages, topicals and other desired products as permitted by Health Canada. “This amended license represents another significant milestone for the Company,” said Tyler Robson, Chief Executive Officer of Valens. “We are excited to be able to utilize this license, our industry-leading extraction, IP and formulation services along with our strategic partnerships with companies like Shoppers Drug Mart, to provide our white label partners access to a comprehensive service offering.”

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