In June 2021, the National Assembly passed Bill G-963, legalizing the production and processing of industrial hemp, which is a variety of the cannabis plant in which the psychoactive substance tetrahydrocannabinol (THC) does not exceed concentration levels of 0.3 percent.
In recent years, interest in industrial hemp has grown significantly around the world. It is considered to be a versatile, environmentally-friendly plant that is used across a variety of different industries. In 2020, the Global Industrial Hemp Market size was estimated at $4,656,000. By 2027, it is expected to reach over $34 million. Most of the profit comes from fibers, oilseeds and pharmaceuticals. At this stage, the Armenian government is targeting industrial hemp primarily for fiber. Industrial hemp is also seen as a sustainable and economically-friendly plant that can replace synthetic fibers and plastic, it can even be used to produce certain construction materials.
Hemp has been grown throughout the world for more than 12,000 years and is one of the most versatile crops grown worldwide. It was traditionally used for the production of rope, fiber, paper as well as in food; it was a particularly prominent material used for shipbuilding, as rope and sail canvas were produced from hemp fiber. However, synthetic materials and natural fibers, together with the modernization of industries that used hemp, such as shipbuilding, led to a decline in the demand for hemp products. In the 1930s, tighter drug prevention measures further cut down hemp production in the United States and many other countries. It was in the mid-1990s that many of the restrictions on industrial hemp were curbed, renewing interest in the crop. However, there are still strict controls over the production of industrial hemp.
The Armenian government has also decided to open the country up to the global industrial hemp market. Armenia’s Ministry of Economy believes that the cultivation of hemp has great potential. As a justification for legalizing the cultivation of industrial hemp, the government cited the growth of industrial hemp plantations throughout the world, the high efficiency of its cultivation, and the growing demand for hemp. They also believe that hemp can be produced in Armenia’s different climatic zones, as the plant has a low demand for soil and external conditions.
The Armenian government expects that the cultivation of industrial hemp will generate high income and will enable the creation of new jobs. Ministry of Economy representative Varsik Martirosyan stated during a televised debate in May 2021 that Armenia’s Ministry of Economy is considering introducing and developing the cultivation of several types of plants to diversify crop production in Armenia; industrial hemp is one of those plants. Hemp is also considered to be one of the fastest-growing plants in the world. The time duration from sowing to harvest in different varieties is 90-120 days, theoretically allowing more than one harvest per year.
The main purpose of cultivating hemp in Armenia is to obtain thread, but hemp raw materials can be used for the textile industry, paper and other products. Hemp seeds contain 30-35% oil, which is used to make special paints, varnishes and cosmetics. In addition, hemp seeds are widely used in Armenian cuisine, for both traditional dishes and confectionery.
In its justification, the Ministry of Economy also stated that, as Armenia has suitable soil and climatic conditions for the cultivation of hemp, businesses will be given the opportunity to not only grow and process hemp locally but also export into the European and world markets.
We contacted the Ministry of Economy for a comment on what economic expectations the Armenian authorities have regarding industrial hemp. Their reply pointed out that only legislative regulations have been implemented at this point; economic efficiency calculations are not yet available, as industrial hemp cultivation and processing have never been carried out before in Armenia.
Challenges of Growing Industrial Hemp
While industrial hemp offers opportunities for the production of a variety of goods, there are also challenges to be considered.
One issue in the U.S., one of the world’s largest industrial hemp producers, is that many states do not require farmers to present buying plans for their hemp crops. As a result, farmers end up with more harvest than they can sell.
The Armenian authorities seem to have addressed some of these issues. Farmers who want to engage with industrial hemp are legally required to obtain a license and present a business plan, in which they have to indicate potential buyers for their hemp and hemp products. They also ask the companies that apply for licenses to present a forecast of how much hemp and products they expect to grow, although it is not clear whether the Armenian government has generated estimates of how much hemp and hemp products will be sold in local and foreign markets.
Storing hemp is another challenge that potential hemp farmers have to be prepared to face. Hemp can easily be damaged by humidity, temperature, ultraviolet light and other weather conditions; storing hemp properly is very important to avoid spoilage. If kept under unsuitable conditions, farmers can face mold problems or degradation in cannabinoid potency. While the licensing authority in Armenia requires potential farmers and producers of hemp to indicate where and how they are planning to store their harvest and products, it does not spell out requirements.
Local experts are also raising issues. One of the main concerns is that some may use industrial hemp as a disguise to grow cannabis, which has a higher percentage of THC. In this regard, Ministry of Economy representative Varsik Martirosyan assures that, throughout the production of industrial hemp, lab tests will be carried out several times to check THC levels. The Ministry of Health informed us that the Market Surveillance Inspection Body (MSIB) would monitor the production, export, import as well as wholesale business of industrial hemp. We also contacted the MSIB for a comment on their monitoring procedures; we were informed that the division for industrial hemp was still in the process of being set up.
Another issue is that growing industrial hemp will require significant investment, and may lead to financial losses for companies as farmers build up their experience with the crop. According to the requirements for obtaining a license, the nominal capital for a company intending to grow or import/process industrial hemp must be no less than 10 million AMD (approx. $20,000). Additional equipment will be required for harvesting, processing and storing hemp.
Although in its justification the government stated that the Armenian terrain is suitable for growing industrial hemp, Government Decision 11665-N, adopted on July 15, 2021, requires hemp to be grown in greenhouses only, which entails significant investment. Such capital expenditures would need to be managed diligently if Armenian hemp products are to be competitive in global markets.
Licensing in Armenia
In many countries, the cultivation of industrial hemp is still heavily controlled, including in Armenia. The Armenian government asks for a set of requirements to be fulfilled before companies can obtain a license. The production and processing of industrial hemp are also regulated.
To start with, only corporations (not individual farmers) can acquire licenses for growing, processing, importing and exporting industrial hemp. As a monitoring measure, the Armenian government has decided that the production and processing of hemp can take place only on the land explicitly mentioned in the license.
Licenses are issued by the Ministry of Health for a maximum 10 year period, after which they need to be renewed. Companies can obtain two types of licenses: for growing industrial hemp, and for importing/exporting and processing industrial hemp. It is also possible for the same corporation to receive both licenses. Production and processing must begin within one year after the license is issued.
Companies applying for licenses must also provide a business plan that should include revenue and expense calculations for the next three years, information on key asset raising tools, and, if the license application period is less than three years, a business plan for the requested period.
Other requirements include the description of the industrial hemp plant varieties that are proposed to be cultivated or processed and information on the legal entity supplying the plants. The expected concentration of (THC) and cannabidiol (CBD) to be contained in the proposed industrial hemp plants or in the product obtained as a result of cultivation and processing must also be presented to the licensing authorities.
The companies must also have appropriate premises for the production and processing of industrial hemp, including storehouse, greenhouse and laboratory, that comply with standards set by the government.
The licensees must submit a report to the licensing body by January 15 of each year, presenting how much hemp they cultivated or how much produce they obtained after processing during the previous year.
The Armenian government has set quotas for the production of industrial hemp. Each company cannot produce more than 20,000 tons of hemp flower and green mass and not more than 20,000 tons of CBD oil. The law also entails that, as a result of the sum of licenses issued, no more than 200,000 tons of hemp flower and green mass, and no more than 200,000 tons of CBD oil can be produced. Licensees can submit an application to review these quotas, however.
As of January 26, 2022, six companies have been issued licenses for both growing and importing/exporting and processing industrial hemp. The owners and directors of all six companies are Armenian and they were all established in 2021. EVN Report was able to learn the names of the companies from e-register.am. They include: Agro Industry Corporation LLC (director Davit Darbinyan owns 30% of the shares and the remaining 70% of shares is owned by Sofik Asatryan); Growar CJSC (director Tigran Krmoyan); Field Lab LLC (director and sole shareholder Karen Ghazaryan); Canaprod CJSC (director Sergei Avayan); Green Nature CJSC (director Karen Abrahamyan) and Green Dreams LLC (director and sole shareholder Seda Kosyan). We have identified at least two owners/directors who are also linked to businesses abroad. One of the companies is Canaprod CJSC; Sergei Avayan’s father, Aram Avayan, is the Vice Chairman of Al-Tawasul Trading and Contracting Company operating in Doha, Qatar and Seda Kosyan of Green Dreams LLC is the CEO and founder of of Arabista Coffee in Dubai.
All companies must start their production and processing within 2022 or lose their license. It remains to be seen how successful the hemp industry will be in Armenia and whether Armenian hemp producers will be able to enter international markets.
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