What's behind the fast growing CBD business

cannabis: CBD in Austria: a gray area is booming

Thousands of poinsettias filled the Herneth nursery in Puntigam near Graz for decades at the end of October. With the All Saints' Day arrangements, the employees would have more than their hands full to do - if the company were still a normal nursery today. Because instead of the red potted plants, the greenhouses have only been blooming green for several years. The fourth generation of the family company is now called Hanfama and has focused entirely on the production of industrial hemp since 2017.

The non-psychoactive cannabinoid CBD (cannabidiol) obtained from it has experienced a real boom in recent years. As a whole flower or as an additive in oil, tea and cosmetics, it is increasingly being sold in pharmacies, but also in own CBD stores, online shops or via vending machines. It should not be confused with THC (tetrahydocannabiol). This cannabinoid is classified as an addictive substance in Austria, is psychoactive, so it has an intoxicating effect, and possession is illegal in this country. CBD and THC are only two of more than 100 cannabinoids in the hemp plant. When all are included, a CBD product is called a full spectrum.

Popular natural active ingredient - without "high"

Many people swear by the sometimes relaxing, analgesic, anti-inflammatory and calming effects of CBD - without any "high". In animals, too, doctors are increasingly relying on the substance from the female flowers of certain hemp varieties. The demand for cannabis received renewed impetus this year with the lockdown in the wake of the corona pandemic. In the United States - where marijuana is legal in some states - sales increased by up to 90 percent. In some US states, cannabis shops as well as supermarkets and bakeries were allowed to open during the lockdown. Also in Canada, where marijuana was legalized as a recreational drug in 2018, more cannabis went over the counter while bars and restaurants had to remain closed.

Florian Lorenz, Head of Sales at Hanfama can also confirm a corona effect on the demand for CBD in Austria. "In March we were still sitting together and expected our sales to drop by a full two thirds - in truth, the demand for CBD products then increased rapidly." However, there was also an enormous increase in quality this year - that could also have something to do with it, admits Lorenz.

However, the legal situation for CBD producers and traders in this country is tricky and could get worse, because the sale of food and dietary supplements with CBD-containing extracts is prohibited according to a decree of the Ministry of Health from 2018. This refers to the novel food regulation of the EU. Accordingly, all substances that were not consumed to any significant extent in the European Community before July 15, 1997 are to be described as novel. Food and cosmetics in Austria are therefore not freely available. This requires approval, which is currently being refused. That is why the products are not labeled by the manufacturers as food or cosmetics, but are sold as aroma products.

Classification as an addictive substance threatens small market participants

This year, in July, the next bad news for the industry: If it is up to the EU Commission, natural CBD should now be classified as a narcotic. "If hemp extracts are considered to be addictive, it is not the farmers and SMEs that benefit from the success of the hemp sector, but only the large corporations that can afford the synthetic production of chemicals. We can neither afford nor accept this madness," says Lorenza Romanese. She is the managing director of EIHA, the European Association for Industrial Hemp, which represents the common interests of farmers, producers and traders who work with hemp fibers, shives, seeds, leaves and cannabinoids. It is a fact that the big pharmaceutical industry is behind the request, because as soon as CBD is classified as an addictive substance, only the pharmaceutical industry can work with it, all other market participants cannot, according to Romanese.

The outcry in the hemp industry is correspondingly great, countless shops, producers and processors fear for their existence. "We are watching with eagle eyes what the EU is up to," says Lorenz von Hanfama. "As a company, we are extremely broadly positioned. From biomass to flowers to extracts and cosmetics, we have a wide range of products. We try to spread the risk," said the Styrian. But it would be good for the product CBD if uniform regulations were to come, according to the hemp grower. "Now we have a patchwork carpet in the EU - some countries dare a little more, others less," said Lorenz.

CBD products with a THC content of less than 0.3 percent are legal in Austria. In Germany the value is 0.2, in Italy 0.6 and in Switzerland 1 percent. The reform of the CAP (Common Agricultural Policy) is currently being voted on at EU level. On Thursday night, the EU Parliament voted for the THC limit in CBD products to be raised from 0.2 to 0.3 percent. For Austrian hemp growers this means that they will receive money from Brussels in the future, says EIHA director Romanese.

Natural CBD products made in Austria

From April to October, Hanfama harvests the blossoms of various hemp industry varieties from the EU variety catalog on almost 20 hectares, which corresponds to around 28 football fields. In pots, without pesticides and with beneficial insects, the glass houses Herneth with a total of 170 employees should make one of the largest indoor producers of hemp products.

The THC value in the plants is already within the legal limit of below 0.3 percent. In the past, for example, the discounter Hofer checked the organic vegetables and herbs for its chains, now the Ages is responsible for regular checks.

But not only the raw material is grown near Graz, Hanfama also produces CBD end products itself. "We do everything ourselves from 'Seed to Sale'. In other words, from the propagation of cuttings from the mother plants to cultivation, drying, further processing and CBD extraction," says Lorenz. Export is also an issue. "We are active in nine EU countries and are exporting more and more, with Austria being one of the main markets," says Lorenz. "We want to expand in the next few months, but are concentrating on the EU as a market," said the sales manager.

The company tries to counteract the complex regulations, which can certainly unsettle customers, with transparency. "There are enormous differences in quality, a lot comes from overseas, such as China. But most of them only supply the pure substance, not full-spectrum extracts," explains Lorenz. You win customers with transparency and security. Production tours from the cutting to the end product provide an insight into the Made in Austria process.

Cannabis as an economic factor

Nevertheless, the gray area situation is causing problems for companies in Europe, with 67 percent, according to EIHA, mainly small and medium-sized companies that are involved in the sector with an annual turnover of up to two million euros.

It is difficult to quantify the sector, there is little data available. According to the Trade Association Cannabis Austria (WVCA), there should be 300 companies in Austria (as of 2019) that operate a trade in the cannabis sector. The number of CBD shops, which has increased significantly in a short period of time, is estimated at 400 nationwide. A total of 1,500 jobs depend on the product, and the annual turnover generated amounts to 250 million euros, estimates the WVCA. The Brightfield Group's Europe CBD Report from July 2020 comes to slightly different conclusions. As a result, hemp was grown on more than 2,000 hectares in Austria in 2019. With a strong growth in development, the industry achieved a turnover of 68.77 million euros in this country last year.

Another indicator that illustrates the growth potential is the increase in the area on which industrial hemp is grown. According to a report by EIHA (Hemp cultivation & production in Europe 2018), it amounts to 50,081 hectares in Europe, which is a full 614 percent more than in 1993. 3 percent of this area is in Austria, with France leading the way with 37 percent. 90 percent of the processing manufacturers in the EU use raw materials (seeds, flowers, leaves) from the EU.

But other markets such as the USA, Canada, China and Switzerland are strongly in the process of expanding their lead - the EU could fall behind here. Since the US Farm Bill of 2018 and the legalization of hemp in the US market, the US has transformed from the largest importer of CBD to the leading exporter. The US also makes up about 75 percent of the global CBD market. In 2019, hemp was grown on 211,425 hectares (around 296,113 soccer fields) in the USA. Six times more than just a year earlier. The USA has thus overtaken China (162,000 ha) and Canada (40,000 ha). With the US Farm Bill, EU exports to the USA virtually came to a standstill. "I wonder whether Europe has the courage to make evidence-based politics or just looks on while the rest of the world drifts away," said EIHA director Romanese, criticizing the latest request in Brussels.

The product is established, accepted and in demand - 78 percent of Austrians are in favor of broad availability of CBD, according to a survey by Integral Markt and Opinion Research from July 2019. Florian Lorenz has also made the observation in recent years. "When we started, it was very extreme, so it was said: these are all drugs! That has completely changed." People are becoming more and more concerned with cannabis. More and more know their way around better and better. This amazes the manufacturers and makes them happy because customers appreciate a good product, says Lorenz.

"We plan to grow strong!"

What started as an experiment on a very small scale is developing into a market size. Günter Herneth has made great strides and with conviction without hesitation, for him it is simply a product that helps people.

With the production of CBD, there has been some calm in the company. "We were extremely seasonal, a purely seasonal operation with extreme peaks in terms of employees and workload," says Lorenz. It is completely different with hemp. Due to the cultivation method, the harvest is not carried out once a year, but five days a week from April to October. In December there is a break, when the employees go on vacation or home, and then the cultivation phase for the new year begins.

"The changeover wasn't a big deal for our employees. The systems and machines have stayed the same. Of course, growing hemp was a learning phase for everyone, including us. But what we're good at is cultivating plants. Only further processing was a learning process "says Lorenz. During harvesting, drying and in-house extraction, new things are still learned and new things are tried out, also with the help and input of employees.

Despite all the discussions, the hemp producers are confident about the future. "We are constantly investing in order to get better and to ensure quality. We also do not say we are waiting for the legal processes, everything is on hold - that is not possible," dismisses Lorenz. "We are clearly working towards growth. And we plan to grow strongly!"