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10. August 2020
Consumer Products Lifestyle News Trends & Insight

Market Insight: The Emerging Hemp Cigarette Sector

The hemp cigarette market is one of the fastest growing segments of the cannabis/hemp industry.

A recent industry report from Research and Markets suggests the global cigarette market will be valued at an estimated US $1,124 billion by 2024, and is expected to grow at a 4% CAGR over the next five years. With over 50% of smokers in the US stating that they are looking to quit, the market for alternatives is significant. Hemp cigarettes are one product class that is beginning to gain popular momentum. With the recent marked increase in cases of health problems associated with electronic cigarette and vaporizer use, natural hemp cigarettes afford consumers another modality of ingestion from which to choose.

The smokable hemp market currently represents approximately 2% of the overall CBD market, but with a 250% growth from 2017 to 2018, Brightfield Group, a Chicago-based cannabis market research firm, identifies dried and smokable hemp flowers as one of the fastest-growing segments of the CBD market.

The growing availability of hemp cigarettes in cannabis friendly jurisdictions, like Germany and much of the European Union, is also helping the dried and smokable hemp flower market continue its impressive growth trajectory.

Drivers of growth

Tobacco and nicotine addiction remains a major healthcare issue around the globe. In fact, according to data provided by the World Health Organization (WHO), the tobacco epidemic is one of the biggest public health threats the world has ever faced, killing more than 8 million people a year around the world. More than 7 million of those deaths are the result of direct tobacco use while around 1.2 million are the result of non-smokers being exposed to second-hand smoke. The WHO also indicates that over 80% of the 1.3 billion tobacco users worldwide live in low- and middle-income countries, where the burden of tobacco-related illness and death is heaviest.

Data from the US CDC indicates that 68% of adult smokers said in 2015 that they wanted to quit smoking, and 55.1% of adult smokers said in 2018 that they had attempted to quit in the past year, though only 7.5% successfully quit smoking in that timeframe.

In recent years electronic nicotine delivery systems have become popular, however they have also been met with controversy and health concerns, particularly in relation to use by children and adolescents.

According to recent reports, since spring 2019 at least 68 deaths in the US have been linked to the use of e-cigarettes, and at least 2,739 people have developed serious respiratory illnesses.

Those affected have reported symptoms such as a cough, shortness of breath, fatigue and in some cases vomiting and diarrhoea. In some people, the condition has caused severe lung damage which has developed to become life-threatening. Public health officials in the US are investigating these illnesses and think they are related to different substances found in the e-liquids that were used in these cases. The evidence on the health risks of e-cigarettes is still developing. However, it is clear that vaping is far less harmful to the respiratory system than smoking.

These concerns have led to rises in hemp cigarette use, both in the US and further afield.

A CBD cigarette is made with hemp instead of tobacco which contains cannabidiol (CBD) but a negligible amount of psychoactive tetrahydrocannabinol (THC).

Hemp cigarette manufacturers have adopted an approach to these products whereby they attempt to replicate as many aspects of the traditional smoking experience, including providing an identical packaging format, a scent that matches natural tobacco with no trace odours of hemp, and an enhanced volume of exhaled smoke that resembles smoke exhaled from smoking a tobacco cigarette.

By duplicating these seemingly minor attributes as well as satisfying the “hand to mouth” habit manufacturers of hemp cigarettes are hoping to provide an alternative to traditional tobacco cigarettes that closely matches the habits smokers already have. In this way the switch is potentially easier than other alternatives like vaping.

In recent years, hemp cigarettes have been studied to gauge their effectiveness as a smoking cessation treatment. Although there is still limited research on the use of hemp cigarettes as a smoking cessation therapy, a handful of studies and surveys have generated encouraging results.

A 2019 survey conducted by Brightfield Group of more than 5,000 hemp users in the US showed that 24% of hemp users said they have used it to help quit smoking, typically replacing cigarettes with either hemp or vaping, and 41% of quitters have entirely replaced tobacco with hemp.

Another randomized, double–blind crossover study of 30 people was conducted in 2018 at a UK laboratory to investigate the effects of hemp during nicotine withdrawal. According to the results, hemp reversed attentional bias to cigarette cues in abstinent smokers, such that it was no longer significantly different from attentional bias when they were satiated.

CBD itself has also been shown in studies to impart numerous benefits to tobacco users who wish to quit, including the alleviation of tobacco withdrawals and the overall reduction of tobacco dependency.

Healthy Margins for Retailers

Different than cannabis, Hemp Cigarettes can be sold in the US, in convenience stores, supermarkets, pharmacies, smoke shops and other retailers around the country. Where regular cigarettes only offer retailers and distributors very small margins ranging from 4% to 10%, CBD, enriched Hemp Cigarettes can leave 50% gross margin to the retailer.

Key Players in the Hemp Cigarette Sector

TAAT

US-based TAAT Lifestyle & Wellness Brands (TAAT.CN) is looking to address the need for an effective nicotine replacement therapy by engineering the user experience of their hemp cigarettes to replicate every aspect of smoking traditional cigarettes.

Informal trials conducted by TAAT have shown that by duplicating those attributes, as well as satisfying the “hand to mouth” habit, users found no significant experiential differences between Taat’s Beyond Tobacco™ cigarettes and legacy tobacco products. Beyond Tobacco™ cigarettes are offered in “Original” and “Menthol” flavors, which could help the company capture the 19.5 million menthol cigarette smokers in the US.

The Company has obtained its first U.S. distribution deal with Dallas-based Worldwide Vape, which plans to distribute Taat Beyond Tobacco™ cigarettes in its tobacco and menthol varieties at up to 10,000 Retail Stores in 38 U.S. States.

The Company claims that initial retail market testing of Beyond Tobacco™ cigarettes yielded excellent user feedback, as well as reorders from over 75% of Nevada and California retailers that participated in the testing.

Muhammad Abbas, Chief Executive Officer of Worldwide Vape commented, “Ever since the health effects of tobacco smoking became widely known, many consumers have sought alternatives to smoking traditional cigarettes but have struggled to make a change because of how addictive of a habit smoking is. Vaping was a big step in helping consumers to make a positive change, which is what enabled us to build our business into what it is today. Admittedly, many smokers cannot adapt to vaping because of how different it is. TAAT has addressed this by developing a ‘stick’ product that mimics a cigarette which is designed to deliver a substantially similar smoking experience.”

TAAT’s plans initial production capacity of one million Beyond Tobacco™ sticks per day upon its planned launch in Q4 2020. At this rate of production, Taat will be capable of manufacturing an annual supply of Beyond Tobacco™ cigarettes that is equivalent to 0.168% of the total amount of individual cigarettes sold domestically in 2018, according to data from the US Federal Trade Commission.

Hempacco

Based in San Diego, California, Hempacco is a vertically-integrated manufacturer of hemp products with full-service supply chain offering. The company offers a vertically integrated full-service white label hemp cigarette solution for clients. This is not only production but taking their idea and converting it into the end product. This includes everything from brand management to artwork, creating the boxes, printing, sourcing the raw materials like tipping paper and filters. The company also offers all inclusive project management for the entire experience. With this service, Hempacco is now the largest producer of hemp cigarettes in the United States.Hempacco can even buy and process hemp for clients, with any percentage of CBD they require.

We already own the largest CBD & Hemp Cigarette Private Label production in Mexico, our goal is to be the largest in the USA as well,” said Sandro Piancone, CEO of Hempacco, “we’re seeing an overwhelming demand for private label hemp cigarettes in the USA, with the number of companies calling us to produce growing by the week.”

Hempacco is the first company in the US offering integrated Hemp Cigarette manufacturing services. The company pivoted from being a cigarette manufacturer to a dedicated Hemp producer, meaning customers benefit from the team’s experience in FMCG, where they’ve developed over 1,000 products. In addition, they are well versed in wholesale distribution and retailing.

The company also has special shipping arrangements with trucking and delivery companies that can deliver hemp cigarettes across state lines. This way the product can reach wholesalers and retailers from San Diego to New York.

SinglePoint Inc

SinglePoint, Inc. launched new products into the smokable hemp market at the end of 2019. Since launch the company’s 1606 Original Hemp brand has gained traction after much attention at the 2019 National Association of Convenience Stores launch. The company received orders on-site at the show and gathered over 100 interested clients that collectively own over 15,000 locations. SinglePoint expects to make its first large scale in the near future and has shipped orders to a collective 250 locations

EuroLife Brands

EuroLife Brands (CSE: EURO) (FSE: 3CMA) (OTC PINK: EURPF), a vertically integrated enterprise focused on the pan European hemp, cannabinoid, and health & wellness sector, launched its own exclusive hemp cigarette brand, “HANF SWISS” at the end of 2019. EuroLife now distributes HANF SWISS hemp cigarettes throughout various bricks-and-mortar outlets in Europe, alongside its own CBD consumer package goods e-commerce marketplace.

Other companies involved in the smokable hemp sector include, Wild Hemp, Canoil Canada and Koch & Gsell Ag.

Big Tobacco

Major tobacco firms are beginning to enter the hemp sector, with many already having well established R&D projects designed to ensure they have good understanding of the crop, the growing conditions, the regulatory environment (which is still unfolding), and the associated risks with a new industry.

Tobacco fields grow in a similar climate to hemp, and produce around 2300 lbs per acre, with a price of around $2.00 / lb.  This yields a per acre value of around $5k of harvested tobacco. Hemp in comparison can be worth as much as 60k-100k per acre.

Many major tobacco companies also have stakes in smaller hemp operations alongside their own vaping initiatives.

Author: Matthew Driver, Senior Consultant

Market Analysis | Insight & Trends