U.S. group buys into hemp hype

Considering that most Americans have never bought or consumed hemp seed, $132 million seems like a lot of money to pay for a hemp food company.

However, the tiny fraction of people who have tried or heard of hemp seed is precisely why Compass Diversified Holdings bought a majority share in Manitoba Harvest.

“Our research would suggest that household penetration rates (for hemp food) are approaching the four percent kind of levels in Canada,” said Elias Sabo, founding partner of Compass Diversified Holdings of Connecticut, which invests in mid-sized companies.

“What we see in the United States is the (household) penetration rates, at this point, are less than a half of percent.”

Compass is convinced that hemp food has massive growth potential in North America, considering that so few consumers regularly eat hemp seeds, hemp protein powder or hemp milk.

“Because the penetration rates are so small … we don’t think there is anywhere near levels of saturation,” Sabo said.

“We think this is a market that could grow substantially larger in the U.S. as the U.S. consumer becomes familiar (with hemp).”

Compass announced June 8 that it had acquired 87 percent of Manitoba Harvest, a Winnipeg firm and leading manufacturer of hemp foods.

The investment, or takeover, wasn’t a total surprise because sales of Manitoba Harvest products have been growing by 20 to 30 percent a year over the last several years.

The company reported revenue of $44.9 million in the fiscal year ending May 31, 2015, which was an increase of 28.5 percent from the previous year.

Manitoba Harvest manufactures a line of branded hemp food, including hemp seed, oil, protein powder and hemp milk. The products are sold at more than 7,000 retail stores in North America.

Manitoba Harvest spokesperson Kelly Saunderson said the company was seeking an investor for about a year before agreeing on a deal with Compass. It needed additional capital to support its expansion plans.

“Added resources mean accelerated growth, which is great news for those interested in contracting additional hemp acres,” she said.

“The added capital needed to expand our business means more opportunities for producers.”

Sabo said Compass is determined to increase consumer awareness of hemp food, but didn’t share details of its marketing plans.

He said hemp is a nearly perfect product for consumers who are categorized as having lifestyles of health and sustainability (LOHAS).

As defined by sustainablebrands.com, LOHAS consumers have strong convictions regarding “personal and planetary health,” and are early and “heavy users of sustainable products.”

Sabo said LOHAS consumers are already aware of hemp food in some geographic regions in the United States, where market penetration of hemp is much higher than .5 percent.

“I think there are pockets of those customers that probably exist at higher percentages in northern California … probably southern California as well.”

Sabo said convincing other Americans to try hemp should be easier than persuading people to eat things such as brussels sprouts because hemp seed is a tasty product.

“A lot of times it is hard to marry up a highly nutritious product with also a good taste profile.”

Sabo said Compass hopes to expand Manitoba Harvest’s basic offerings by adding “ready to eat” products to its lineup. The company recently launched Hemp Heart bites, a mini snack bar similar to a granola bar.

One question hanging over the U.S. marketplace is the legality of hemp production.

The U.S. farm bill last year included a provision allowing universities and agricultural institutions to cultivate hemp for research purposes. However, growing hemp seed for commercial purposes remains illegal in the U.S.

Sabo said hemp food’s profile would be boosted substantially if the U.S. decided to legalize hemp seed production.

“In Canada, the legalization of growing food-grade hemp helped with the awareness and allowed for the market to expand quite rapidly,” he said.

“Absent that (legalization), we will (still) have a focus on raising awareness to the American population.”

Hemp sales in the U.S.

  • U.S. sales of hemp food and body care products were estimated at $200 million last year.
  • Sales of hemp food and body care products grew by 21.2 percent last year, based on surveys of selected stores, including natural food and conventional retailers.
  • U.S. sales of all hemp related products was estimated at $620 million last year, which included food, body care, clothing, building materials and auto parts.

Contact robert.arnason@producer.com

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