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China Cashes In on the Cannabis Boom

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Cannabis growing in Yunnan Province in China in 2004. Yunnan is now licensing companies to cultivate the plant to produce cannabidiol. Credit. Leisa Tyler/LightRocket, via Getty Images

  • May 4, 2019

SHANCHONG, China — China has made your iPhone, your Nikes and, chances are, the lights on your Christmas tree. Now, it wants to grow your cannabis.

Two of China’s 34 regions are quietly leading a boom in cultivating cannabis to produce cannabidiol, or CBD, the nonintoxicating compound that has become a consumer health and beauty craze in the United States and beyond.

They are doing so even though cannabidiol has not been authorized for consumption in China, a country with some of the strictest drug-enforcement policies in the world.

“It has huge potential,” said Tan Xin, the chairman of Hanma Investment Group, which in 2017 became the first company to receive permission to extract cannabidiol here in southern China. The chemical is marketed abroad — in oils, sprays and balms as treatment for insomnia, acne and even diseases like diabetes and multiple sclerosis. (The science, so far, is not conclusive.)

The movement to legalize the mind-altering kind of cannabis has virtually no chance of emerging in China. But the easing of the plant’s stigma in North America has generated global demand for medicinal products — especially for cannabidiol — that companies in China are rushing to fill.

Hanma’s subsidiary in Shanchong, a village in a remote valley west of Kunming, the capital of Yunnan Province, cultivates more than 1,600 acres of hemp, the variety of cannabis that is also used in rope, paper and fabrics. From the crop, it extracts cannabidiol in oil and crystal form at a gleaming factory it opened two years ago, in a restricted zone next to a weapons manufacturer.

“It is very good for people’s health,” Tian Wei, general manager of the subsidiary, Hempsoul, said during an interview at the factory, which was punctuated by test gunfire from the manufacturer next door.

“China may have become aware of this aspect a little bit late, but there will definitely be opportunities in the future,” Mr. Tian said.

China has, in fact, cultivated cannabis for thousands of years — for textiles, for hemp seeds and oil and even, according to some, for traditional medicine.

The Divine Farmer’s Classic of Materia Medica, a text from the first or second century, attributed curative powers to cannabis, its seeds and its leaves for a variety of ailments.

The company Hempsoul extracts cannabidiol from the hemp it grows on more than 1,600 acres in Yunnan Province. “It is very good for people’s health,” said the general manager, Tian Wei. Credit. Steven Lee Myers/The New York Times

“Prolonged consumption frees the spirit light and lightens the body,” it said, according to a translation cited in an article in the journal Frontiers in Pharmacology.

The People’s Republic of China, after its founding in 1949, took a hard line on illegal drugs, and cultivating and using marijuana are strictly forbidden to this day, with traffickers facing the death penalty in extreme cases.

After signing the United Nations Convention on Psychotropic Substances in 1985, China went even further. It banned all cultivation of hemp — which had long been grown in Yunnan, a mountainous province that borders Myanmar, Laos and Vietnam and is among China’s poorest. Farmers produced hemp to make rope and textiles and China had banned it even though it has only trace amounts of tetrahydrocannabinol, or THC, the mind-altering compound found in marijuana.

At a news conference in Beijing last month, Liu Yuejin, deputy director of the National Narcotics Control Commission, said the momentum toward legalization in other countries meant the Chinese authorities would ”more strictly strengthen the supervision of industrial cannabis.”

The Hempsoul factory has dozens of closed-circuit cameras that stream videos directly to the provincial public security bureau.

China relented on industrial hemp only in 2010, allowing Yunnan to resume production. Hemp then was used principally for textiles, including the uniforms of the People’s Liberation Army, but soon the products expanded.

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The growing industry has brought much-needed investment to Yunnan. The mild, springlike climate is exemplary for growing cannabis, and a farmer can earn the equivalent of $300 an acre for it, more than for flax or rapeseed, Mr. Tian of Hempsoul said.

Hempsoul is one of four companies in Yunnan that have received licenses to process hemp for cannabidiol, putting more than 36,000 acres under cultivation. Now others are joining the rush.

In February, the province granted a license to three subsidiaries of Conba Group, a pharmaceutical company based in Zhejiang Province. A company based in the city of Qingdao, Huaren Pharmaceutical, said recently it was applying for permission to grow hemp in greenhouses, which already line the landscape around Kunming.

Other regions have taken notice, too. In 2017, Heilongjiang, a province along China’s northeastern border with Russia, joined Yunnan in allowing cannabis cultivation. Jilin, the province next door, said this year that it would also move to do so.

The flurry of announcements sent the companies’ stocks soaring on Chinese exchanges, prompting regulators to step in to restrict trading.

China has cultivated cannabis for thousands of years. Yang Ming, a leading expert on hemp, said the plant’s seeds were traditionally formed into a ball and used to treat constipation. Credit. Steven Lee Myers/The New York Times

While the health benefits of cannabidiol remain uncertain, the United States Food and Drug Administration last year approved the first use of it as a drug to treat two rare and severe forms of epilepsy. Other potential uses are being studied.

China permits the sale of hemp seeds and hemp oil and the use of CBD in cosmetics, but it has not yet approved cannabidiol for use in food and medicines. So, for now, the bulk of Hempsoul’s product — roughly two tons a year — is bound for markets overseas. Mr. Tian said he believed it was only a matter of time before China, too, approved the compound for ingestion.

Hanma’s ambitions are global. It has acquired an extraction plant in Las Vegas, which is expected to begin production soon, and it plans one in Canada. Mr. Tan, the chairman, said he hoped that China, with the world’s largest market, would follow the lead of the United States, which he called “the best-educated” market for the benefits of cannabis.

“It’s a new application, but one that carries forward our tradition,” he said, citing the ancient texts describing its medicinal purposes.

Yang Ming, a scientist with the Yunnan Academy of Agricultural Science who is one of China’s leading experts on hemp, said the plant’s seeds were traditionally formed into a ball and used to treat constipation, but the psychotropic qualities of cannabis were not broadly known by farmers or other residents.

As China gradually opened up following the Cultural Revolution, however, foreign visitors to Yunnan in the late 1980s and early 1990s discovered an abundance of cannabis growing wild. That, in part, turned the region into a destination for backpackers and adventurers seeking a certain kind of experience.

“They would go to the villagers’ cannabis fields, pick the buds and bring them back to the hotel to dry and smoke,” Dr. Yang said. “Some of them became deranged and ran around naked after smoking it.”

That’s when the authorities intervened. Dr. Yang, originally from Yunnan, was a recent graduate of the agricultural university in Beijing at the time. He was assigned to study cannabis, and he has been doing so ever since. His avatar on social media is a cannabis leaf.

The academy has been breeding its own varieties of hemp — each of which requires approval from the police — to ensure the plant contains less than 0.3 percent of THC, the international standard for cannabis. There are nine varieties now, and Dr. Yang’s team continues to research more.

One of the varieties, Yunnan Hemp No. 7, allows the extraction of greater amounts of cannabidiol. While the compound’s use in commercial products remains in its infancy, Dr. Yang has watched the stigma of its association with marijuana begin to evaporate.

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“Other countries,” he said, with pride of parenthood, “really like our CBD.”

China Is Blaming Canada For Its Cannabis Problem But Is Producing 50% Of The World’s Supply

China’s pressure to curb illegal Canadian cannabis imports underscores the country’s power in the . [+] growing market. And with China producing over 50% globally, the United States may be the country to suffer the most from its laws and restrictions on the five-leafed plant.

Canada’s legalization of cannabis this year wasn’t met with red-envelope-like celebration by Chinese government officials. The Chinese government has long blamed the maple-blanketed country for its handling of tons of illegal cannabis imports. Those officials have a right to be somewhat perturbed, as roughly 20% of Canada’s total marijuana production ($1.2 billion worth) was sold illegally beyond the country’s borders last year, a good portion believed to be China-bound.

Were it another disconcerted country, it might seem less hypocritical because while China is displeased with Canada for contributing to its cannabis problem, the country itself produces 50% of the world’s supply. China’s crops are largely hemp, and thus the non-psychotropic and fiber-rich variety of cannabis.

Psychology T oday traces the Chinese economic uses of cannabis hemp to 10,000 B.C. Chinese farmers know how to farm, cultivate and process cannabis for fabrics, medicine and recreational use. As of 2017, Chinese companies have 309 out of the 606 patents filed around the world that relate to cannabis. So while cannabis remains illegal in the People’s Republic of China, its massive economic potential poses a threat to cannabis interests around the world and particularly in the U.S. market.

China’s growing cannabis influence

The New Zealand Herald reports , “There are no official figures for the amount of the plant China produces each year, but plantations are flourishing — both for commercial and illicit drug use. This growth was in part made possible by government-funded scientists assigned to study the plant’s military uses, including medication and uniform fabric.”

Because of this strategic approach, China holds over 600 patents on cannabis applications. This scares pharmaceutical researchers and manufacturers in the West. An Ottawa-based investor and biochemist, Dr. Luc Duchesne, emphasized in the same report that “because cannabis in Western medicine is becoming accepted, the predominance of Chinese patents suggests that pharmaceutical sciences are evolving quickly in China, outpacing Western capabilities.”

If marijuana remains a Schedule I drug, the research necessary to catch up in, let alone lead, the potential for the advancement of cannabis-based pharmaceuticals in the U.S. is stifled. Researchers find it difficult to fund work and deliver the necessary testing, and there’s no indication that will change soon.

If China does, indeed, supply half of the world’s cash crop, its influence can only grow as individual countries and U.S. states legalize the use of hemp and marijuana. They’ve mastered the art of commercializing hemp more than the U.S. has as well. Bryan DeHaven’s Colorado-based clothing company, Chiefton Supply Co., explained , “You can’t make hemp clothing in the U.S. because the country no longer has sufficient expertise in textile production.”

It is believed, in fact, that Chinese investors and producers with deep knowledge and expertise in hemp cultivation are transferring their talents to the appealing U.S. market. “What better place to invest that expertise than the voracious American economy, where 29 states and the District of Columbia have legalized the psychoactive version of cannabis,” wrote David Carpenter in Big Buds Magazine.

Do Chinese cannabis consumers have a say?

As recently as 2015, Chinese authorities were arresting citizens for marijuana possession and raiding homes, clubs and businesses. Tim Hill said, “Behind a tight veil of secrecy, there is a small but flourishing circle of mainlanders who grow, trade, smoke, and eat weed.”

At the time, Beijing residents had to buy from foreign dealers, Africans, and Uyghurs, importing weed from their countries of origin. And, China still bans cultivation, transport, sale, and possession. Eve Ripley reported that under the People’s Republic of China criminal law, “individuals who smuggle, traffic, transport or manufacture narcotic drugs are sentenced to either 15 years of prison, life imprisonment or death, and suffer confiscation of property.”

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In Hong Kong, manufacturing cannabis or any other drug included in the city’s Dangerous Drugs Ordinance is deemed the most serious of all drug-related offenses. Any person who cultivates any plant of the genus cannabis faces an HK$100,000 fine and 15 years in prison. Still, the amount of cannabis seized by Hong Kong police increased 238% in the just the first 10 months of 2017.

In the netherworld of Beijing, Shanghai, and other large cities, foreigners, expats, and diplomats much know someone who knows someone to find incarnations of the plant at inflated prices. Visiting Shanghai in 2017 to bring the first cannabis-related real estate investment opportunities to China, I can attest to this. What’s more, the quality there isn’t up to par with U.S. artisan-grown varieties– some of it is downright rank.

The future impact

With so many acres under cultivation in China and the local governments turning a blind eye, the product will move. How it moves remains an open question. Chen Weihua reported , “For many Chinese, marijuana is a drug and therefore synonymous with opium, a much more potent substance that the British forced upon the Chinese during the Opium War. The war was widely regarded by Chinese as the start of their country’s ‘century of humiliation’.”

So, with those prohibitions in place, the market will seek markets on its own. For example, much of the crop is committed to fabric manufacturing. The Chinese government supports research into fabrics suited for military uniforms.

Moreover, growers harvest the seeds for processing in oils, creams and beauty products. And, some part of the output goes into legendary herbal medicinal cures. For China’s pot to make a significant impression on the Western canna-economy, there must be state-approved logistics for global distribution and permissive banking regulations.

Considering that most countries restrict or simply prohibit importing cannabis, the product is economically isolated. You won’t hear any talk of legalization in China soon. China’s history, drug wars, and communist control have left citizens convinced that drugs are personally and socially evil.

So, cannabis hemp production remains the work of remote farmers. Many of them are Muslim Uyghurs, whose land and culture was co-opted by the Han Chinese. Their farming customs originated in East Turkestan, where some of the best cannabis strains began. The Uyghurs are now involved with separatist activism and have suffered repercussions from the Chinese government.

China’s influence and potential interest in the US cannabis market

China’s farmers don’t pose an immediate threat to U.S. marijuana markets. They have no official or practical trade route. However, as with all things in the People’s Republic of China, anything can change at the whim of the leadership. And with trade tariffs being thrown back and forth between the two countries, American’s have the opportunity for a huge economic pivot if legislation reform were to allow it.

@POTUS @realDonaldTrump @FLOTUS Agricultural & industrialized hemp should be part of our answer to China’s tariff’s on sorghum & soy beans. China is making big bucks from their hemp production. We can take control of the worlds hemp market if we play it right. #EndTheProhibition

— HippieSubVet (@IntheEucharist) April 18, 2018

But, this isn’t their grandparents’ China. The current regime has a highly pragmatic approach to things. In the decades since the passing of Mao, the National Committee has made room for enough free economy to make them a major worldwide economic force. If the leadership should see the cash value in the legalization and trade of cannabis, they’ll move in that direction.

It’s likely they will continue to secure leadership in manufacturing and pharmaceutical applications. They are positioned to capitalize on their natural and human resources – if it is in their interest. The international issue of China’s oppression of the Uyghurs remains the most volatile and unpredictable barrier to the success of their canna-economy.

Disclaimer: I have no financial interest or positions in the aforementioned companies. This information is for educational purposes and does not constitute financial and/or legal advice.