THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Thursday, October 18, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 9 a.m. to study how the value-added food sector can be more competitive in global markets.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: I’m Senator Diane Griffin from Prince Edward Island and chair of the committee. Today, the committee is continuing its study on how the value-added food sector can be more competitive in global markets.
Before we hear from our panel of witnesses, I would like to start by asking the senators to introduce themselves.
[Translation]
Senator Maltais: Senator Maltais from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
Senator Oh: Senator Oh, from Ontario.
Senator Bernard: Wanda Thomas Bernard, Nova Scotia.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
[English]
Senator R. Black: Senator Black, from Ontario.
The Chair: On our panel today, from the Canadian Hemp Trade Alliance, we have Mr. Ted Haney, the Executive Director; and from the Canadian Industrial Hemp Corporation, we have Mr. Rob Ziner, founder and chief executive officer. Thank you for accepting our invitation to be here today. We’ll start with Mr. Haney.
Ted Haney, Executive Director, Canadian Hemp Trade Alliance: Thank you very much. I’d like to begin by thanking you for your invitation for us to come and present. Whenever we can present challenges and opportunities in the industrial hemp sector, that’s a good day, so we’re pleased to be able to share that with you today.
Commercial production of industrial hemp in Canada resumed in 1998 with the industrial hemp regulations under the Controlled Drugs and Substances Act. This created a licensing and permitting system to allow for the production, sale, processing and trade in seed for food and fibre.
Health Canada issued an exemption within the Industrial Hemp Regulations in 2016 and 2017 that made more efficient the regulations around licensing and permitting, as well as approval of commercial growers and processors. That was further revised when Health Canada issued the whole-plant harvest exemption in August of this year that allowed, for the first time, industrial hemp growers to collect the flowering materials and leaves of the industrial hemp plant for the purpose of later extracting cannabinoid, or CBD.
That was a common sense permission that Health Canada granted because, if they would have waited until yesterday, the entire crop would have been harvested and whole plant would have been a 2019 issue.
Of course, industrial hemp regulations were then moved from the CDSA to the Cannabis Act yesterday. This has again simplified licensing and allows for the whole plant, including seed, fibre and chaff; chaff is what we collectively refer to as the flowering materials, as well as the bud and the leaves of the industrial hemp plant.
Just as a point of clarification, industrial hemp is defined as a cannabis plant or any part of a cannabis plant where that plant contains no more than 0.3 per cent THC by weight in the flowering head. So this is a plant that does not, by any reasonable definition, produce THC. It produces feed, it produces food, it produces fibre, and it produces a resin that you can extract CBD or cannabidiol from.
The Canadian industrial hemp licensed acreage increased from nothing in 1998, when it was legalized, to 55,854 hectares, or 138,000 acres in 2017, according to our latest data. Sales exceeded $60 million at the farm gate, with processed product sales of over $130 million generating exports of just over $90 million. We’re moving in the right direction, but there’s a great deal more work to do in a few areas.
Our industry creates four primary products: food, feed, fibre and fractions. It’s the four F’s of hemp.
Looking at food, the development of domestic and international standards for all hemp food products is required. Today, the only standards in existence are in purchase contracts by individual processors, and there are no standards for quality, microbiological standards, colour or any other quality standards in the international trade.
The development of appropriate standards will facilitate proper corporate trade in these food products, both domestically and internationally. It will allow the Canadian quality and safety advantages to be identified, quantified and valorized.
The Canadian Hemp Trade Alliance is currently developing these standards within our membership, and is also working with ASTM, an international standards-setting body, to establish those same Canadian standards as the standards for hemp food internationally. This is because Canada is in a leadership position for food in hemp worldwide.
The next is feed. For millennia, hemp has been used as a livestock feed, but not in Canada. Canadian hemp products are not allowed to be used as a livestock feed product in Canada. They have not been registered for livestock feed, although we do have them fully available for human food. The lack of registration of the full range of Canadian hemp products for feed has increased the risk to Canadian producers, who are not able to sell their production into the food sector, maybe due to a standards issue. It might be off-colour, lightweight or a small size, and due to these reasons they can’t sell it to a food manufacturer. Or there is excess supply in a year and their typical customer is not able to buy, so it goes into the inventory.
Ordinarily in the grain and oilseeds world, that would trigger a sale into the livestock feed sector, but without registration that cannot happen, so it poses a great risk to producers.
The only real alternative to the Canadian food market for Canadian hemp is selling to the European bird seed market at what are really salvage prices. There’s no money to be made in exporting great Canadian hemp to the bird seed market in Europe.
Canadian hemp processors of dehulled hemp hearts also do not currently have a viable market for the hemp hull. The seed has got a soft protein- and oil-rich centre and a hard shell around it. When you dehull it, those shells make up 60 per cent of the weight. There’s no viable alternative and processors must dispose of that product. It’s a great animal feed and we need to complete the registration of that product, as well, for animal feed in Canada.
Opening the livestock feed sector to Canadian hemp seed and processed hemp seed derivatives will eliminate a great deal of the market risks, allowing for a confident and consistent expansion of production, irrelevant of how well the food market is operating in any one year.
On our third F, fibre, Mr. Ziner will be talking in more detail about a particular project that’s very important, but the majority of hemp fibre today in Canada is currently disposed of by farmers, many times by burning in the fields. The primary constraint to profitable hemp utilization in Canada is the lack of decortication, or fibre separation capacity. The required capital investment in these facilities has been due to the requirement to reach critical mass of consistent supply of feedstock in specific market regions. As our industry expands to consistently meet that critical mass, it will be central to attracting the required capital investments in processing fibre.
Once the decortication capacity is available, then value-added products can arise out of the basic two fibres that are produced from hemp. This is a myriad of products in construction, in houses, and even paddles and canoes and skateboards. It’s a wide range of products that can be produced from the hemp fibre in a sustainable fashion, but we need that next round of capital investment.
Finally is fractions, the fourth product produced by our industry as of yesterday. Industrial hemp flowers and leaves or chaff can now be collected and sold for the purpose of extracting cannabidiol, or CBD.
As industrial hemp by regulation produces less than 0.3 per cent of THC by weight in the flowering heads, the potential for THC contamination has been eliminated.
Health Canada has restricted the processing of CBD to licensed marijuana processors and has further restricted the sale of CBD to medical marijuana and provincially regulated marijuana retail sectors.
The Canadian Hemp Trade Alliance believes that CBD has a much lower-risk profile than THC and should be regulated as a unique product.
The Government of Canada can allow the extraction of CBD to be conducted outside of the Cannabis Act and allow the sale of CBD-containing products as a food ingredient at low dosage and as a natural health supplement at moderate dosage rates.
High-dosage products can still continue to be regulated as a pharmaceutical or prescription product. This approach is supported by risk evaluations completed by the World Health Organization in 2017. This approach is similar to that proposed by the U.S. Senate’s version of the current farm bill.
Excessive regulation of the CBD processing and sales will put the Canadian industry at a competitive disadvantage at home and in export markets to our great competitors in the United States should they complete their regulations and farm bill.
The Canadian Hemp Trade Alliance filed a brief to Treasury Board recommending that regulations and regulatory oversight for all Canadian industrial hemp should be moved from Health Canada to Agriculture and Agri-Food Canada. This move of authority will encourage recognition and regulation of industrial hemp as the agricultural crop that it is. That move is very important.
I have some comments on labelling that I was asked to bring forward. They’re very brief, if I might.
The Chair: How brief are they?
Mr. Haney: I can do it later.
The Chair: Can we leave them for a question?
Mr. Haney: Absolutely.
Rob Ziner, Founder and Chief Executive Officer, Canadian Industrial Hemp Corporation: Good morning, senators. Did you know that the retail value of all hemp products sold in North America in 2016 exceeded $1 billion and that less than 1 per cent of that was produced from hemp grown in North America? Meanwhile, Canada, which imported over $25 million worth of the actual hemp fibre itself from Europe and China, also imported over $20 million worth of finished hemp products.
My name is Robert Ziner. I’m the founder and Chief Executive Officer of Canadian Industrial Hemp Corporation. Thank you for your invitation to be here today.
Although seed is currently the best-known hemp product in Canada, it is only one of the three products derived from the hemp plant. The other two are fibre from the stalk and the non-psychoactive CBD oil extracted from the flowers and leaves.
Adding value to the stalk by converting it into fibre is what I am addressing today. Although a large-scale industry for processing stalk into fibre has not yet been established in Canada, this industry is already thriving in China and across Europe, generating over $1.3 billion a year in combined sales.
These regions of the world never made growing hemp illegal, allowing the industries there to keep developing proprietary technologies and value-added opportunities.Significantly, these offshore fibre producers rely on inexpensive labour to justify their low operating margins.
There was 200,000 tonnes of stalk created across Canada in 2017 from the seed crop and over 90 per cent was either burned in the fields or disposed of at a cost equalling 10 per cent of the farmers’ entire seed crop revenue. It was all wasted.
The potential value which can be added to 200,000 tonnes of stalk is over $200 million. Converting stalk into fibre is a huge profit opportunity, and fibre has been converted from stalk for literally thousands of years.
However, the reality is that Canadian labour costs eat away the profit available in traditional hemp fibre processing facilities, and low-volume production in a labour-oriented environment cannot fulfil the needs of commercial end users.
The result is that not only can Canada not export hemp fibre at this point, its operating scale and quality are so low that its own existing producers must buy from overseas to ensure consistent supply.
Canada has three comparable advantages. First, from a North American perspective, Canada has had legal hemp farming since 1998, giving us a head start. However, with the recent passage of the hemp bill in the U.S., the Americans are coming. Second, Canada is uniquely positioned to have a world-beating hemp fibre industry. It has 94 million arable acres of land and currently only grows 100,000 acres of hemp. Third, Canada is known as a world leader in artificial intelligence, AI development, machine learning and high-tech agronomy.
Canada’s top two comparable disadvantages to be overcome are, first, the fair wages paid in Canada are too high to economically justify stalk separation, known as decortication; and, second, the five existing stalk processors in Canada — and there are only five — are small-scale operators, able only to generate low margins and, therefore, cannot afford to invest in automation and automated quality control.
What will it take to be competitive in Canadian as well as global hemp markets? Simply put, Canada will need to become a low-cost, high-quality producer of hemp fibres regardless of our labour costs.
More hemp will need to be grown, and the way to do this is to motivate the farmers to grow hemp only for fibre in some cases, which will end up delivering them the highest revenue of almost any crop grown in Canada for the fibre.
Canada needs to pursue state-of-the-art hemp fibre processing facilities using 21st century advanced manufacturing and intelligent automation, and the industry needs to process hemp the same way cars are built and computers are assembled: using artificial, intelligence-driven, integrated manufacturing systems. Forbes Magazine, in an article in 2017, stated that artificial intelligence will impact every industry possible. It will not miss hemp processing, I promise you.
All of this technology is expensive, but there are three great reasons to invest in modernized decortication. First, the global fibre market is growing quickly. Second, technology brings better quality and lower production costs. Third, the technology will pay for itself in less than two years of operation.
However, if we wait, the risk to Canadian manufacturers is that they may end up having to pay royalties to foreign companies who own the intellectual property that the producer needs to be competitive. Canada must encourage intellectual property to be developed in Canada and reside in Canada. Otherwise, it will end up costing Canadians money today, tomorrow and for a long time.
There are more than 25,000 products that can be made from hemp fibre. These include bio-pellets used to replace pure plastic products with bio-composites, kitty litter and commercial absorbency products, textile fabrics, rope, insulation, automotive parts, snowboards and hempcrete.
All of these products outperform the products they were designed to replace. They are all sustainable and most of them cost up to 35 per cent less to produce. In fact, Mercedes, BMW and Renault all use European hemp fibre to construct door panels and other car trim parts. These car manufacturers use hemp because it is less expensive and lighter in weight than making it out of plastic.
Canadian companies in hemp processing need support from government to help justify, identify, coordinate and jointly develop hemp products and markets. All the stakeholders need to work together to invest in developing and presenting high-profile hemp demonstration projects. Government needs to assemble and facilitate access to more global market data and directly lend their expertise and relationships to drive market success.
In closing, please remember there is a global market, there is a growing demand, and there is simply not enough quality supply in Canada. There is an existing fibre market worth well over $1 billion waiting for Canada. We have the capabilities and all the resources needed to capture our fair share.
Thank you very much.
The Chair: Thank you. Those were two excellent presentations.
[Translation]
Senator Maltais: Welcome, gentlemen. Thank you for presenting your brief. Where exactly is hemp cultivated in Canada? In which provinces or territories? I have no idea.
[English]
Mr. Haney: Today, licensed hemp producers are in nine of 10 provinces. Only Newfoundland does not have hemp production. The largest three are in the prairie provinces — Saskatchewan, Alberta and then Manitoba. Other major ones are Ontario and Quebec. There is a strong presence of production in Atlantic Canada and, due to some unique conflict issues, there’s very little in British Columbia.
[Translation]
Senator Maltais: In your brief, you stated that hemp has been recognized since 1998. However, it was far more common in Canada before that time. Louis Hébert planted hemp in New Brunswick in 1607 and in Quebec City in 1617. This crop has been grown in Canada for several hundred years. I don’t understand why it does not appear on the international market. Agriculture and Agri-Food Canada or Health Canada seem to have problems with recognizing the product. What are the main objections that they give you?
[English]
Mr. Haney: Part of the answer is momentum. It’s true that hemp was a major food crop and fibre crop in Canada during the time of establishment, but the industry was ripped out by the roots in the 1930s and was not allowed to re-establish until 1998. All of that momentum of trade, investment, production, knowledge, intellectual development and variety development was stopped. Our public researchers were not involved and hemp was lumped in with marijuana and the illegal nature of the product. There was no differentiation and, as such, it just stopped.
So this is the slow and difficult restart. The fact that such an obviously agricultural crop is still regulated entirely under the Cannabis Act within Health Canada, I think, shows the reluctance to fully recognize food, feed, fibre and fractions as the primary products of the industrial hemp sector.
If there is a reluctance, it’s splitting hairs. There is THC contained within the industrial hemp plant, but less than 0.3 per cent by weight in just the flowering head section of the plant. It is a residual product. It’s irrelevant. So let it go, let it become the agricultural crop that it should be and release this crop from the constraints currently imposed on it for licensing and for licensing growers. If it’s difficult, a grower will just say, “Oh, forget it, there are other crops I can produce. I don’t need to ask for a commercial grower’s licence. I don’t have to do the registrations of my fields. I can just grow.”
It’s still complicated. Release the crop. Let it become an agricultural crop.
On fractions, Health Canada has today taken the position that THC and CBD are to be regulated identically, yet their risk profiles are fundamentally different. CBD does not intoxicate. The World Health Organization did a wonderful review in 2017 to confirm, again, that CBD is not related to habituation. There are no addiction issues. In fact, CBD appears to be useful in treating addiction in humans and is not addictive itself.
So, since the risk profiles are so different, release the product and let CBD become the health and wellness product it should, let it be a food ingredient, let it be a natural health supplement, and regulate it along with the rest of the plant. Then, I think you would see real growth in the industry, including feeding the raw product of fibre that’s so necessary for Mr. Ziner’s project.
[Translation]
Senator Maltais: Let us leave the aspect of drugs for now. We have been talking about it for the past 24 hours and it’s making our heads spin. The main difficulty with the use of hemp stalk is decortication. We started to see equipment appearing in the United States around 1920 to use the fibre. Do we still have the same difficulties in extracting quality fibre today? The question is for Mr. Ziner.
My next question is for Mr. Haney. Could you give me a list of hemp based product that are healthy?
[English]
Mr. Ziner: I’m sorry, can you repeat that?
[Translation]
Senator Maltais: I would like to know if modern equipment, as compared to the equipment from 50 years ago, better extracts fibre to make products like wool or fabric.
[English]
Mr. Ziner: Yes. Most technology has literally been the same since the 1930s. The Americans are now developing some improved technology, and our company is developing an advanced manufacturing system that uses artificial intelligence and integrated manufacturing, much like car manufacturers and computer assemblers, to change the economics of decortication and to maximize the opportunity in terms of adding value to the output.
Our system treats each bale separately, optimizes the value, and ensures we have high productivity to bring down our unit production costs. The good news is technology is on the way.
[Translation]
Senator Maltais: Will this technology allow you to be competitive in the Netherlands, amongst other countries?
[English]
Mr. Ziner: Yes. Based upon our studies of costs, we believe that, notwithstanding that Europe is considerably advanced over Canada and has advanced further because they’ve developed value-added end products they pursue, such as these bio-pellets for biocomposites, the reality is that they have limited throughputs. The maximum production out of a plant from Europe in 12,000 tonnes a year. The stated capacity of our system will be 50,000 tonnes a year. So we introduce a whole new level of scale but, more importantly, the automation technology, the scanning and the artificial intelligence we plan to include will allow us to considerably increase the value we add to the stalk that we put through.
I believe in one of the documents I sent you I was able to demonstrate that our five-year projection is that we will process 50,000 tonnes a year, generate $50 million in revenue, and have EBITDA of 47 per cent. The reality is that we would be the low-cost producer in the world. We believe that not only will we be able to therefore export hemp fibre itself, but we believe we have a great opportunity to export our technology, which is patent-pending, by the way.
Senator Maltais: Thank you.
Senator Doyle: It is amazing, really, that hemp has taken so long to take off. Even when I was a kid, we were hearing about hemp used by fishermen in rope. That was the only thing we knew about hemp: that it was contained in rope.
The chart you sent says an awful lot. We have 22 million acres under wheat; 23 million under canola; and we only have 150,000 acres under hemp, which is amazing.
Could that have to do with the fact that there was a stigma attached to hemp? There were a couple of different varieties that were banned worldwide because of the high THC content that it had. I’d like a comment on that, if you have any.
Is there a high labour cost associated with the production of hemp? I know you mentioned labour costs, but is it a much different labour cost on hemp than it would be on wheat, soybeans, canola or that kind of thing?
Mr. Ziner: No, not necessarily from that point of view. The difference is, first, in our model, we are planning to pay the farmers up to $300 a tonne for the fibre. From a cost point of view, that would become our largest cost.
Forgive me, senator, can you repeat the question? I want to make sure I am clear.
Senator Doyle: You mentioned the labour costs associated with the production of hemp. Will it be much different? Will it be lower or higher? I get the impression it might be a good bit higher.
Mr. Ziner: No. The reality is that processing fibre is a complex issue from a material handling point of view. You get a lot of breakdowns and bottlenecks because of the way the fibre goes through the system. This is where our artificial intelligence and our integrated automated manufacturing assist us.
The reality is that the cost of the hemp itself is probably your largest contribution.
Senator Doyle: Will there be benefits — for example, for the environmentally conscious individual today, when they look at plastic and the amount of plastic going into the oceans and so on, is there a future for hemp or parts of hemp being used in plastics that might somehow replace the existing plastics we have today and make it more environmentally conscious? Is that part of it all? Could that be part of it all?
Mr. Ziner: It is a huge part, senator. We are doing work with the Government of Alberta with regard to developing these bio-pellets that will allow us to replace up to 80 per cent of the volume of plastic in specific products with hemp fibre. Therefore, we are replacing 80 per cent of that oil-based polymer with a sustainable product. It seemed to be a good fit for environmental reasons.
Senator Doyle: The waste that would accumulate from the waste of the recreational cannabis industry — is there any potential in that? Could it have too much THC content to be used for industrial purposes, or is that a no go? Would that be totally out of the question, because the THC might be too high when it comes to the waste from that industry?
Mr. Ziner: No. I was able to get samples from a licenced producer in Ontario and send it to the Ministry of Agriculture in Alberta, which will be doing tests for us.
The size of the stalk in medical marijuana plants is smaller than the size of the stalk, generally, for the hemp plant. The process yields less fibre, which is the main ingredient. However, as part of our ongoing research, we are looking at how we could utilize that in finished products in order, again, to create value-added from that particular source.
Senator Doyle: So there could be some good that comes of all this recreational use of cannabis.
The Chair: I will take that last as a comment, and we’ll move on.
[Translation]
Senator Dagenais: Thank you to our two guests. I would like to continue in the same vein as Senator Doyle. Mr. Ziner, you yourself talked about CBD in hemp as opposed to THC in cannabis. If I refer to stock market experts, recreational cannabis producers have no issues with investments. In fact, they have made very significant gains recently. Why is there not the same enthusiasm for your crop? I mean on the stock market, of course.
[English]
Mr. Ziner: With regard to fibre, yes?
[Translation]
Senator Dagenais: That’s right. Cannabis producers have made monumental profits with THC. So with your crop, why have we not heard about such enthusiasm in the stock market for hemp fibre, for example, that has CBD? Why is there not the same enthusiasm for both products? Is it because legalisation is something new? However, hemp has existed for a long time.
[English]
Mr. Ziner: Very significantly, there is an important distinction in growing for CBD and stalk versus growing for seed. Seed matures at 16 weeks; CBD and stalk both mature at 13 weeks. If one goes to take the CBC from plants that have already matured for seed, you are getting overmatured CBD content, which is degraded. If they harvest the plant in 13 weeks, the output will be optimum for both CBD and the stalk.
The reality is the stalk is a huge profit opportunity. As I said, the 200,000 tonnes we generated in Canada could be converted into $200 million of value-added product.
The answer is that there is a huge opportunity out there. We believe that we have unlocked the solution by addressing the problem and improving productivity and increasing the value that we can add to the product in such a way that we can afford to pay farmers more money for the stalk. We can offer good paying jobs that have a certain skill quotient associated with them. From that point of view, we believe that what we are going to introduce into the market will be completely disruptive.
[Translation]
Senator Dagenais: You spoke about certain labour issues and you indicated that salaries in Canada sometimes make you less competitive. We know that in other countries, salaries in the agricultural sector are lower. What could improve your production costs and make you more competitive?
[English]
Mr. Ziner: Very simply, the same thing that has been happening in manufacturing around the world for the last 30 years, which is automation and AI.
My first involvement with advanced manufacturing was back in the mid-1980s, when I developed an AI-based system for secondary wood processing. This has been around for a long time. It’s the opportunity to improve the economics by improving the technology. From the time that Henry Ford came out with the Model T in 1913 and came up with the assembly line, we have seen over and over again that changes in technology change the economics of many industries.
[Translation]
Senator Dagenais: You spoke about technology, equipment, and investment. We know that our neighbours to the south can quickly deduct the amount that they have invested if they invest in their own company. I know that this does not really happen in Canada. Do you believe that we should do the same in Canada when Canadian manufacturers invest in their own companies? Should new technologies come with tax deductions? That would help you. Do you believe that we should make a recommendation to that effect in our report?
[English]
Mr. Ziner: The simple answer is anything that will advance our economic output, that will allow us to create more jobs and create greater economic stability in Canada, should be pursued.
The reality is that, from a labour perspective, it comes down to improving productivity. Productivity is essentially defined as the output from one individual in the scale of that particular business, so you are looking at unit production costs. Our unit production costs are about 50 per cent of existing decortication operations, so it makes a huge difference.
Again, with my background as a secondary wood processor for 20 years, the one thing I learned is if you can’t add value and make a profit, you don’t do it; it just doesn’t pay. That is why we don’t have enough hemp being produced for fibre in Canada. It’s too expensive relative to the amount you are able to generate if you are focusing on just putting in a commodity and taking out two subcomponents of that commodity. You have to look at how you can integrate the production to create secondary products and bring down your unit costs.
Senator Oh: Thank you, witnesses, for being here. I want to follow up on the last two questions.
What is the yield return per acre for a farmer who will produce hemp? Do you know what the return is? How many plants can you grow on one acre, and what is the return compared to other crops?
Mr. Ziner: That is a great question. I believe in one of the documents that I sent out there is a graph showing the revenue per acre for the different crops, as well as for hemp seed and hemp fibre.
If you look at the other crops, you can be talking, from a net perspective, anywhere from about $275 to $500 or $600 per acre in terms of net revenue.
On hemp seed in 2017, they were making $800 per tonne. That was around $800 an acre. In 2018, we had a reduction in the amount of hemp grown. The price went down, because China has been dumping hemp seed into the market, to about $625 an acre.
When you grow for seed, you put in about 125 plants per acre. When you grow for fibre, you want the plants to be closer together because you want the life force to go into the stalk itself. There you grow 400 plants per acre.
The tonnage is one and a quarter tonnes per acre of stalk from seed stalk, and, statistically, 3.6 tonnes up to 12 tons per acre of stalk when growing specifically for fibre. We use, statistically, 5 tonnes per acre. We say 5 tonnes per acre and we are prepared to pay $300 a tonne for hemp grown specifically for fibre. That would potentially yield farmers up to $1,500 or more per acre, making it the highest value crop in Canada.
Senator Oh: What is the turnover? You say three to four weeks to have it full grown?
Mr. Ziner: No, 13 weeks, which is three weeks shorter than seed. Because the Prairies are the largest area of growth in the country, when you are able to harvest three weeks earlier, it takes the pressure off the farmer if he is also growing for seed, because he can do that harvesting first. It also takes more pressure off them because they are not running into the winter season.
Senator Oh: Are we able to grow two crops a year?
Mr. Ziner: Not in Canada. Maybe in Osoyoos, British Columbia, which is our native desert. Beyond that, I’m not sure we would get two crops here.
However, I would also add that from a farming perspective, the Prairies and Ontario and Quebec, in their northern areas, will benefit the most from growing hemp for fibre because there you get 20 to 22 hours of sunshine in the summer. Hemp needs sun. It doesn’t need much water or pesticides. It needs a bit of herbicide, but that’s it.
Senator Oh: How big do the plants grow?
Mr. Ziner: Technically, they can grow up to 20 feet. In Canada we are expecting, if we grow them for fibre alone, 14 feet.
Senator Oh: Back to the question on environmental issues. How long before the fibres disintegrate? Plastic will stay a long time.
Mr. Ziner: Thousands of years. They are saying it depends on how much fibre is put into the product. It will have an opportunity to degrade in 100 years, but that is not really the issue. The issue they look at from an environmental perspective is how much oil it replaced, because they look at the production of oil as being environmentally unfriendly. If we can replace the oil with the fibre as a percentage of volume, we improve the environmental impact by reducing the oil used.
Senator Oh: Marijuana was legalized yesterday. Do you think the growing of hemp will pick up?
Mr. Ziner: I have no doubt that it will. The investment community has benefited from the marijuana industry. It has made them very anxious to keep pushing for public market opportunities.
Based on the discussions that I have had with investment bankers in Canada and in the United States, I have no doubt that hemp is their next frontier. I can tell you that I have already been approached by two hedge funds — one in Canada and one in the United States — who are interested in putting together a consortium of primary and secondary processors. They are talking big numbers.
Senator R. Black: Thank you for sharing your numbers with us. The one that struck me the most was the 200,000 tonnes grown, 90 per cent which is burned or disposed of, and so there is the availability of material.
You talked about the opportunity for expansion. Where should that expansion take place, given that production is in nine of 10 provinces? I’m guessing — and I could be wrong — that there are economies of scale as far as plants for processing. Where should this expansion take place? If it is only in parts of the country, how do we get the product from the growing location to processing facilities?
Anyone can answer.
Mr. Haney: Again, it is nine out of 10 today. There is a reason, agronomically, why the three largest provinces are the prairie provinces. British Columbia is a somewhat more complicated situation. Why there are only 80 hectares licensed for production in 2017 is a complicated matter to do with cross-pollination issues.
Frankly, there are opportunities for growth in all regions of Canada. There are very specific investments being made in food processing, in fibre processing in Atlantic Canada, Quebec, Ontario, as well as in Manitoba, Saskatchewan and Alberta.
While it can be seen as a national imbalance toward acreages in the prairie provinces, there will still be a large presence of hemp, particularly across Highway 16, for the dual purpose fibre varieties and along Highway 1 and Highway 3 in the south of the prairie provinces for seed-optimized production. Again, with processing capacity, removed barriers increased acreages in each region. Atlantic Canada, Quebec and Ontario, in addition to the prairie provinces, all have that growth.
By the way, our industry has estimated growth by addressing some of these constraints. The goal of the industry is to reach 450,000 acres or 200,000 hectares of production and $1 billion in sales with $900 million in exports by 2023. That is just around the corner. As I said, we have a lot of work to do.
Mr. Ziner: I would like to also give some perspective in terms of the fact that, from our point of view, being able to have a plant that has a 50,000-tonne capacity and with the margins that we have defined, as opposed to existing decortication plants which limit themselves to a 200-kilometre radius for their supply, our business model is based on going up to 600 kilometres because we have the margins to justify and afford it. From our point of view, we look upon the opportunity. For example, if we located in Alberta, we would also be able to get supply from British Columbia and Saskatchewan. If we located in Saskatchewan, it would be the same story.
Our plan is to replicate these plants across Canada and to replicate them in the United States. The reason I talked about the fact that the Americans are coming is because, if we don’t take a lead position in the hemp decortication technology now, the Americans are known to be pretty fast and pretty aggressive when they want to get something done and we risk losing our opportunities to them.
Senator R. Black: How is it transported from the field if it is 600 kilometres away? Is that in 14-foot stalks? Is it chopped up and sent in rail cars? There is a cost to that as well.
Mr. Ziner: The cost has been factored into our logistics. The reality is it is a standard baler; you either go round or square. It goes on to a flatbed — approximately 21 bales or 1 tonne per truck — and they are brought to the facility that way.
Senator R. Black: Thank you.
Senator Bernard: One of my questions was asked by my colleagues, but I would like to follow up around the issues of wages.
Mr. Ziner, I think you said that fair wages are too high to make the industry competitive. Can you expand on that? What do you consider a fair wage and what does that mean?
Mr. Ziner: Forgive me; I didn’t mean to suggest that the fair wages are way too high. I am saying that when you are competing against China and Romania as the principal sources of supply today, you are competing against very low-cost labour when you translate the amount of manpower required to go through this process of decortication, which is manually oriented. It was in one of the documents I sent. There were pictures that show how it looks in a Romanian operation.
The point is that we create, for example, a capacity. We have 77 jobs per plant and we generate about 30,000 to 40,000 hours of trucking. Our proform is based on paying our hourly labour $20 an hour and our skilled labour to compete in the marketplace up to $30 an hour, plus 24 per cent benefits. We look upon ourselves as being a very responsible contributing opportunity for the province that we locate in, for the farmers and the community that we end up in as well.
I am saying that you need to supplement the productivity using technology in order to be able to be in business without focusing on your hourly labour cost. You have to find other ways to increase your productivity.
Senator Bernard: Thank you for that additional clarification.
Mr. Ziner: Thank you.
Senator Bernard: I have a follow-up question on that, in terms of the workforce and 77 jobs per plant. How diverse is that workforce in terms of gender and ethnicity?
Mr. Ziner: It is interesting, senator, that you bring that up. I have been discussing the idea of trying to orient this, to a certain degree, to be what I call a clean agricultural technology, as an opportunity to attract women also to work in the operation so that women in rural communities have a better opportunity to get good, sustainable paying jobs.
From our point of view, with regard to our board of directors, we have committed to ensure we have women and minorities involved as well. We want to create a progressive environment that will allow us to have top quality and we also recognize that we will need an attitude from our first layer of staff, which is willing to work on something new.
What we are doing in hemp fibre processing has never been done before. We acknowledge that it involves certain application risks, but we are comfortable with the fact that it is not a question of “if” but “when.” Our system is also engineered to operate from being manual to fully automated.
Senator Bernard: On the development of technology and innovation, are you collaborating with universities and colleges in terms of that research and development?
Mr. Ziner: Yes. We are working with the University of British Columbia, for example, on developing a joint project with Germany where we are looking, with regard to the bio-pellet projects, developing custom engineered bio-pellets. We are working with this German organization jointly where they will develop a virtual extrusion and injection moulding system so that we can see how bio-composite products come together in the product and affect the structural integrity. That way, we can provide formulations to existing plastics producers without having to go through direct testing and give them an idea of what would be the optimum mix of fibre and polymer and how much money they could save.
We are also working with InnoTech Alberta, the Composites Innovation Centre in Manitoba, and with PAMI in Saskatchewan. We are trying to become a focal hub for collaboration through all of these research organizations and bringing a central opportunity for knowledge development for Canada’s natural fibre processing industry.
The Chair: Thank you.
Senator Oh: Are you the biggest company doing the hemp project now? How many companies in Canada are doing what you are doing?
Mr. Ziner: Well, there are five small-scale decortication companies that operate in Canada. We don’t operate yet; we have developed our technology. Right now we’re in fundraising. We’re raising $45 million to build our facility and for our working capital.
The point is that, fundamentally, we would represent the largest decortication plant in the world with the highest productivity, the highest output and the highest value-added potential. At this point with our patent applications — actually, we just finished our one-year provisional and there was no challenge to that so we’ve just refined and completed our patent application after the one-year mark. As far as we’re concerned, and as far as we understand, we are the only ones in the world who have looked specifically at how to improve decortication with advanced manufacturing technologies.
Senator Oh: Can we grow in a greenhouse?
The Chair: Time is up, Senator Oh, you can have that discussion afterwards.
Senator Miville-Dechêne: First of all, I’d like to congratulate you. I’m always impressed by businessmen or businesswomen who are so involved in a project which won’t be easy. Obviously you believe in it. I’m impressed by what you’re saying and your plans, but it’s complicated because you will be in the market and you will have to make profits. So, first, congratulations.
What about the image question, because obviously hemp suffers from an image deficit? For the general public like me, what we know about hemp, in Quebec anyway, are a few stores where you see hats and shirts. You feel there must be cannabis behind it, and it’s now legal, but there is this image attached to hemp as something not exactly mainstream. What can you do as a businessman to change this image?
And I’d like to know precisely what does CBD do?
Mr. Ziner: That’s kind of a wide-ranging question, senator. Let me start by talking about CBD because it’s controversial and I probably shouldn’t address it. The fact of the matter remains that, from a psychoactive point of view, you could not get high on hemp if you worked on it for 20 years. That’s the bottom line.
In terms of the perception, you know, it’s a funny thing about perception. Perceptions change. Maple Leaf Foods had problems with their meat and, if you do a good PR and marketing campaign, people forget quickly.
Right now I think that I have seen research coming online even with regard medical marijuana and the positive impact it has on anxiety and on multiple sclerosis.
I believe the tainted image of hemp is something that will be quickly forgotten when people see the opportunities and the benefits they get. For example, that hemp shirt that I passed around, one of the main advantages of hemp fibre that people don’t fully appreciate is that it’s antibacterial. The reason people have body odour is because the bacteria gets into the fibres of their cotton or polyester shirt and it grows there. If you’re wearing a hemp shirt that bacteria has no place to grow, so you will find you have no body odour.
Senator Miville-Dechêne: This is great. You should talk about that.
Mr. Ziner: That’s why I said specifically that what the government should do is understand the need to work on a marketing program that defines the distinctions and the benefits. You know, there are just so many wonderful products. Senator Doyle was telling me about the bio-composites that are used for decks today and for fencing products. It really becomes a question that will evolve with time.
For a number of the types of applications we’re looking at, they’re industrial. The ability to replace rayon, and pulp and paper, where a typical pulp and paper plant making toilet paper or kitchen towels could save over $60 million a year going from a synthesized rayon to a natural bast fibre. It’s significant and will make people see things differently.
The Chair: Okay. Thank you. I was going to ask all kinds of questions. Some people have already asked them, of course, but I promised Mr. Haney I would ask him about the item he wanted to talk about, which is labelling. Can you send us your comments in writing, send them to the clerk, and they will be distributed to all of us because I want to hear what you have to say about labelling.
Mr. Haney: Sure.
The Chair: Thank you, panel. It’s been great.
(The committee adjourned.)