Cannabis firms aim high despite the legal haze

It’s heady times for cannabis startups and stocks in the US where one state after another has been legalizing pot for both medicinal and recreational use, the latest being Virginia. The Joe Biden administration mulls doing it at the federal level too, because cannabis enjoys enthusiastic support across the aisle.

Ironically, it was at the behest of the US in 1985 that India clamped down on cannabis, which now continues to be tightly controlled in a land where it has been a part of ancient culture and ayurveda. Recently, the UN Commission on Narcotic Drugs removed cannabis from a list of dangerous substances, tacitly acknowledging that its addictive and harmful effects had been exaggerated. India’s backing of the UN reclassification has kindled hopes that the country will join the new global movement towards exploiting the medicinal and commercial potential of cannabis.

Despite the legal haze, cannabis startups have begun to take root in India.

Bombay Hemp Co. or Boheco, an early mover in this space, started out around nine years ago with clothes and fabric made from cannabis plant fibre and has expanded into making ayurvedic supplements and formulations for nutrition and pain relief.

Safer parts

The plant’s fibre and seeds don’t come under India’s Narcotic Drugs and Psychotropic Substances Act, because they have a low concentration of THC (tetrahydrocannabinol), which gives us a ‘high’. It’s the flowers that are high in THC and many other cannabinoids like CBD whose medicinal effects researchers are rediscovering. Cannabinoids can also be derived from the leaves, whose THC content is relatively lower. In India, the flowers as well as the plant’s resin, which produces charas or hashish, are deemed narcotic substances, and so is the plant as a whole. The leaves are all right—legally—if they are separated from the flowers and resin.

Cannabis has been an ingredient in ayurvedic formulations for aeons. So, the ministry of AYUSH, whose mandate is to promote indigenous alternative medicinal systems, does allow ayurvedic products to include cannabis, and ayurvedic doctors to prescribe such medicines. The catch is the makers have to rely only on leaves to avoid falling under the purview of narcotics.

All this constructs a complex maze for any startup brave enough to bet on the future prospects of cannabis products. “When we began, a lot of communication was required with the regulators,” says Jahan Peston Jamas, one of the seven co-founders of Boheco. “But we were one of the first companies to receive licences from the Madhya Pradesh government for hemp seed products as well as our leaf-based wellness and ayurvedic products.”

Through its local licensed partners, Boheco has been sourcing the leaves from excise departments that control cannabis plants which grow abundantly in the wild in many parts of India, especially the foothills of the Himalayas, the north-eastern states and the Western Ghats of Kerala. It has also been working closely with industrial hemp growers in Uttarakhand, the first state to legalize cannabis cultivation. Several other states have let research organizations start working on improving seeds and developing medicinal products as the stigma abates.

Entrepreneurs and labs the world over are in search of combinations of THC, CBD and other cannabinoids that produce health benefits, pain relief, or even safe recreation. In India, the idea of opening up cannabis for recreation remains taboo, but there’s growing interest in medicinal uses. The problem is that the cultivation of cannabis has been curbed so much that raw materials will have to be imported for any meaningful scaling.

Regulatory bottlenecks are the reason cannabis startups are yet to attract institutional venture capital in India, although angel investors have been laying early bets. For instance, Ratan Tata is among the backers of Boheco, which has raised $1.5 million in funding so far.

LEGAL HURDLES

“I think the supply chain as well as end uses are complicated because of legalities. Secondly, I’m not sure of consumer demand, especially when the products are expensive,” says Jinesh Shah, founding partner of Omnivore, when asked why the agritech VC had made no bets on hemp startups yet.

It’s a domino effect of regulations. Hemp could probably be grown more economically at scale in Bihar or Madhya Pradesh, but it’s only Uttarakhand that is trying to work with traditional growers in the mountains, where transport, storage and scaling are more challenging.

One way to work on the supply side is to adopt a cooperative society model, taking a leaf out of the Amul dairy playbook. Himalayan Hemp, based in the Kangra region of Himachal Pradesh, has taken this approach in its attempt to promote the growth of indigenous hemp plants that have unique characteristics. Co-founders Haneesh Katnawer and Sonam Sodha became aware of the lack of support and low income of hemp growers while travelling in the Himalayas a few years ago. Sodha, who comes from a rural area of Kutch in Gujarat, empathized particularly with the women in the hills. This led to an epiphany: Why not make sanitary pads out of cannabis hemp fibre?

Hemp is resilient, moisture-absorbent and anti-bacterial, making it an ideal candidate. So, the duo roped in a National Institute of Fashion Technology, Ahmedabad, designer to create a hemp sanitary pad and this was the genesis of Himalayan Hemp, which got registered as a startup in 2018. It was incubated in the National Institute of Agriculture Marketing in Jaipur, which also provided a grant to develop, test and deploy the pads. “We would start by training one woman in a village to make the pad. Then we would form a cooperative society when more women joined in. We kept going like that from village to village,” recalls Katnawer. It has added other products, including an N95 mask made of hemp last year.

At the outset, it focused on forming cooperative societies of hemp artisans, because cultivation is complicated by regulations. Even though Uttarakhand has legalized it, only cannabis varieties with less than 0.3% THC can be grown. This is borrowed from US regulation defining industrial hemp and its products.

The US standard puts indigenous farming in other regions at a disadvantage because it will require genetically modified or tissue-cultured seeds. “We don’t support the current hemp cultivation policy in Uttarakhand, which sets a 0.3% THC limit because that means we will have to import the seeds instead of using the local variety of hemp. This is not farmer-friendly and it will affect our biodiversity,” says Katnawer.

Despite a long tradition, India has missed out on the benefits of cannabis because of myopic policies. Canada was one of the first to legalize cannabis. Not surprisingly, Canadian firms are among the top marijuana stocks on US bourses. Now, China, where hemp has grown for thousands of years, aims to push cultivation and dominate the global cannabis market.

Malavika Velayanikal is a consulting editor with Mint. She tweets @vmalu