The legalization of cannabis in Canada is about to bring big changes not just for medical cannabis companies but for hemp growers as well.

• The law legalizing recreational cannabis in Canada will come into force on October 17.
• This will create new opportunities for hemp growers to produce the plant for CBD extraction.
• Hemp growers will now be able to profit from all parts of the plant.
• Cannabis companies are experimenting with growing techniques, expanding their businesses, and seeking supply agreements in preparation for the change.

Marijuana Company of America Inc. (OTC :MCOA ) (MCOA Profile), which grows industrial hemp in Canada, will now be able to sell leaves and flowers as well as other parts of its plants, and is preserving this year's crop in preparation for the change. In the United States, Isodiol International, Inc. (OTC :ISOLF ) is raising the profile of the industry through a celebrity partnership and the expansion of its retail chain. Aurora Cannabis, Inc.(ACBFF) has been acquiring financing to fund a program of expansions and takeovers, preparing the way to dominate the American market. Organigram Holdings, Inc. (OTC :OGRMF ) and Emerald Health Therapeutics (OTC :EMHTF ) have both set up a string of supply agreements, giving them quick access to the Canadian recreational market come October.

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Transforming Canada's Cannabis Industry

On October 17, cannabis will become legal in Canada. Under the provisions of the Cannabis Act, Canadians will be able to buy and consume cannabis for recreational as well as medical purposes. Careful licensing, together with clear rules around cultivation and processing, will ensure that a previously illegal industry becomes a well-regulated part of the legal economy. As Prime Minister Trudeau said when the law was passed, "It's been too easy for our kids to get marijuana - and for criminals to reap the profits. Today, we change that."

The Cannabis Act promises to be a great boon to the Canadian economy. Since 2014, the Canadian medical cannabis industry has grown to include over 100 licensed companies, many of which will be able to expand their sales and research under the new rules. In a year's time, further rules will come into force that allow the sale of concentrates and edible cannabis products, creating a cannabis food and drink industry. But one of the biggest changes will take place within the industrial hemp industry.

Cannabis without the High

While the term "cannabis" is most often used to refer to plants with psychoactive effects, it actually covers a broader range of crops. One of the most historically prevalent varieties of cannabis is industrial hemp, a form of cannabis grown by companies such as the Marijuana Company of America (OTC :MCOA ).

Industrial hemp is distinct from more controversial forms of cannabis - marijuana - in that it does not contain tetrahydrocannabinol (THC), the active ingredient that gets users high, but rather it contains cannabidiol (CBD), which has recently grown in popularity due to its variety of medicinal benefits. Hemp was used for hundreds of years to produce fibers for cloth and rope and was widely grown in North America. But for most of the past century, it has been out of production thanks to broad-ranging anti-cannabis legislation.

The past few years have seen a resurgence for industrial hemp. Legislation created for the cultivation of medical marijuana has created the opportunity for companies such as MCOA to grow hemp in Canada. In the United States, the 2014 Farm Bill created legal space for trial crops of hemp. That bill's 2018 successor appears set to make it entirely legal in the United States, allowing farmers to grow a highly profitable new crop.

The passing of the Cannabis Act will further improve the potential of hemp in Canada, as it will allow producers to extract cannabidiol (CBD). Cannabidiol is an active ingredient that's commonly found in high concentrations in certain varieties of industrial hemp. It doesn't have the psychoactive properties of THC but has been shown to have beneficial effects on health. As a result, it's used in a growing variety of health and wellness products, including MCOA's brand hempSMART[TM].

Using the Whole Plant

Up until now, Canadian hemp producers have been limited in what they can do with the plant. The seeds could be extracted and used; fibers could be turned into textiles; and leftover elements known as hurds could be turned into either animal feed or construction materials. The use of leaves and flowers was specifically prohibited.

The Cannabis Act allows for a broader range of uses. Health Canada has proposed the introduction of new industrial hemp licenses to make this a reality. Under the proposed system, industrial hemp producers will be able to sell the whole plant or any of its parts to other licensed operators within the hemp industry. They could even process it themselves, extracting CBD oil as well as seeds, fibers and hurds.

It's a change that will create a more efficient and profitable industry, as parts of the plant will no longer go to waste. And growing interest in CBD as a wellness ingredient could lead to a significant rise in income for hemp farmers. Companies such as MCOA, whose operations cover the whole industrial chain from hemp production to the sale of CBD products, will be able to build solid, sustainable supply chains that maximize profits at every step.

This is all before taking into account the possibility of agricultural subsidies. There is currently disagreement within Canada over whether cannabis growers will be eligible for subsidies under existing rules, but with the arrival of cannabis-based foods and beverages next year, lines will become increasingly blurry. MCOA and its joint venture partner, Global Hemp Group Inc., have received financial support from Canadian government agencies to research hemp cultivation. As the commercial landscape changes, hemp producers may soon find themselves eligible for even more government help.

Sowing the Seeds for a Growing Industry

MCOA's growth in the Canadian hemp sector comes through its establishment of a high-yielding CBD hemp cultivation project in New Brunswick (NB). This collaboration with Global Hemp Group has revived hemp cultivation in the region 20 years after a previous effort failed.

The joint venture partners are in process of completion of the first phase of what is known as the Hemp Agro-Industrial Zone, or HAIZ. The aim of the HAIZ is to provide a steady supply of hemp by building a local industrial cluster, guaranteeing a market for farmers and leading to year-round jobs for others in the region. Through trial crops and careful measurement of the results, the project is providing valuable data on important issues such as pests, fertilizers and growth rates.

Recent developments at the site include the installation of drying equipment in preparation for processing. In the short term, this will allow the company to effectively store its current harvest until it can be sold and processed under the rules coming in October. In the longer term, it will increase its options for growing, processing and selling hemp. The joint venture partners are currently in the process of negotiating off-take agreements with extraction companies to sell the biomass produced during the October harvest in New Brunswick.

MCOA and its partners in New Brunswick have been finding ingenious ways to improve techniques impeded by decades outside the law. This year, the team in NB experimented with a modified bean harvester to strip leaves and flowers from the plants without picking up much straw. Based on the results, this technique is being extended to the entire 125-acre project.

Cannabis Cultivation Creates New Industry

In less than two decades, a whole new industry has grown up around the cultivation of hemp and other forms of cannabis. Even with restrictions still tight in much of the world, companies are finding ways to legally profit from these crops.

Isodiol International, Inc. (OTCQB: ISOLF) has become an important and active voice for the industry, employing former NFL player Marvin Washington as a director and spokesperson. The company has developed a variety of cannabis and CBD-derived products, tapping into the medical and vaping markets. Its KURE Corp subsidiary provides a strong retail front and has recently set its sights on further expansion through new and acquired shops.

A prominent player within the industry, Aurora Cannabis, Inc. (ACBFF) is making the most of a young market to rapidly expand its business. A $150 million loan from the Bank of Montreal is giving it a short-term financial boost to get ahead of the long-term game. It's this sort of long-term thinking that has led the company to acquisitions such as the takeover of MedReleaf, increasing Aurora's market share. Some commentators have compared this strategy with that of Amazon, focusing on market dominance as the route to profit.

Organigram Holdings, Inc. (OTCQX: OGRMF), a medical cannabis company, is preparing to expand into Canada's recreational market in October. The company has established a number of agreements with other companies, most recently the Nova Scotia Liquor Corporation, to supply its products to stores. These agreements will ensure that the legal recreational market quickly grows from a principle to a reality.

Emerald Health Therapeutics (OTCQX: EMHTF) is also setting up supplier agreements to give it a place in the recreational starting lineup. Its partners include the Newfoundland Labrador Liquor Corporation and Ontario Cannabis Retail Corporation.

The Canadian cannabis industry is set to experience a transformation on October 17, one that will prepare companies to expand as laws change elsewhere in the world. From medical cannabis companies to hemp growers, many business enterprises are likely to profit from this change.