Monday, May 20, 2024

Meet Hanma that’s soared on China’s cannabis craze


Whoopi Goldberg has a product line of body balm that’s derived from it. Gwyneth Paltrow’s wellness platform Goop has also added its stamp of approval having partnered since last June with MedMen, a California-based marijuana dispensary chain. Welcome to the boom in cannabis-related health products.

Known as CBD, short for cannabidiol, the substance that is generally extracted from hemp or marijuana is expected to create a market estimated to be worth $16 billion by 2025, an eight-times leap from now. CBD is non-psychoactive and its proven therapeutic benefits have legitimised its entry into a wide array of consumer products.

For China, home to half of the globe’s cropland for legal cannabis, CBD’s growing popularity offers a lot of upside. Following the legalisation of hemp in the US last December, the Chinese government has accelerated corporate licencing for cannabis cultivation, with Jilin province in the northeastern rustbelt being mulled as the third crucible for industrial hemp production after Yunnan and Heilongjiang.

The policy changes mean A-share investors have been getting high on so-called ‘marijuana concept stocks’. Many placed their bets on partners of Hanma Investment Group because no other company can match its reach over China’s CBD sector. Supported by 12 units, none of them listed, Hanma’s business lines cover the entire production chain, from cannabis plantation and CBD extraction to applications for its use including biopharmaceuticals.

A-share firms that have announced partnerships with Hanma such as Chengzhi, Dezhan Health and Shanghai Shunho all saw their shares surge strongly in the year to date. Meilleure Health, which has a 20% stake in Hanma’s flagship unit Hansu Biotechnology, likewise saw its Hong Kong-listed stock trade up 279% in the same period.

Hanma was established in 2013 by Hunan native Tan Xin. Son of a diplomat, Tan started his career in the military at 16 and after he was discharged he worked briefly for the Ministry of Foreign Affairs. After finishing his Master’s in Business Administration at the University of South Florida, Tan returned to China and worked at two firms associated with the People’s Liberation Army, including one that produced the hemp fibre used in the PLA uniform, the reports.

Today, Hanma works closely with various defence units through its subsidiary Hanyi Biotechnology to develop drugs for the military. Hanyi also launched SUTIWA, a hemp-infused drink, and cosmetic brand Cannaclear in 2016 and 2017 respectively.

Market leadership hasn’t guaranteed success for Hanma, though. “The business for industrial hemp is going to be tough for Chinese players in the next few years,” Tan told National Business Daily, noting that the company’s profit margins had peaked at 50% in 2017. For the fall off, he blames rising labour costs but also Hanma’s relatively weak technological capabilities compared to its peers in developed countries.

“[Internationally] our product lacks competitive advantage. The CBD content in our cannabis strain is only 1.2% on average, compared to 3% in the US, or even 10% for those grown outdoors,” said Tan, who believes Hanma’s efficiency can only improve through acquiring higher quality hemp seeds.

Last year the company’s hemp extraction unit, Hansu Biotechnology, partnered with Kings Royal Biotech to construct a $40 million processing facility in Kentucky following an acquisition of a 35% stake in the US cannabidiol supplier. It is also building another extraction plant in Las Vegas, due to open in June. Hansu is expected to book Rmb78 million ($11 million) in net profit this year, according to a filing by Shenzhen-listed Galaxy Biomed, which has a 5.6% stake in Hansu.

Hanma’s business straddles 14 sectors. Its next big thing: an e-cigarette, as indicated by a deal struck in February with cigarette label manufacturer Shantou Dongfeng Printing and vaporiser producer Shanghai Shunho

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